Home sellers are lowering prices, homes are sitting on the market longer than a year ago, and homebuyers have five houses to consider — one more than last year, according to Realtor.com.
Yet, buyers aren’t in the driver's seat despite the market cooldown.
“It is still a tough time to be looking and if you think about it from a buyer’s perspective, the mortgage rate has almost doubled since the beginning of the year,” Deepa Raghavan, senior equity analyst at Wells Fargo Securities, told Yahoo Finance Live (video above). “If you find the inventory that you like, you're paying a lot more than initially planned at the beginning of this year.”
This week, the rate on the 30-year fixed mortgage hit 6.29%, the highest level since October 2008 and more than 3 percentage points higher than the start of the year.
“If the 30-year mortgage rate stays above 6% or even heads to 6.5%, it's going to be a very tough situation for the buyer,” Raghavan said. “But if the 30-year mortgage rate somehow is at 6% or below, it gives enough time between now and the spring for the buyers to recalibrate their affordability levels and probably then step in the market at that time.”
It’s been a rough year for homebuyers, with some experts calling it the worst housing affordability crisis, as homebuyers face low inventory, rising mortgage rates, and competition from institutional investors.
Higher mortgage rates is also creating a deterrent effect known as “rate lock-in" for homeowners who are thinking twice when it comes to selling their home and re-entering the market as a buyer. Over 85% of homeowners have a mortgage rate lower than 6%.
That's keeping inventory low on the market, creating a floor for prices.
“Would you want to wait for prices to fall further even if you could afford it? I don't think right now it makes sense — it could actually stem the bleed,” Raghavan said. “Buyers definitely have been hurt and mortgage rates are actually trending higher.”
Ronda is a personal finance senior reporter for Yahoo Money and attorney with experience in law, insurance, education, and government. Follow her on Twitter @writesronda