Surging mortgage rates and record-high home prices are no longer sidelining potential buyers. Instead, house hunters are “losing patience” and moving forward with their goal of owning a home, Bank of America’s Matt Vernon told Yahoo Finance Live.
“The dream of homeownership is alive and well,” said Vernon, head of consumer lending at Bank of America. As of October, more than a third of prospective homebuyers are no longer willing to wait for home prices and interest rates to fall to buy a home, up from 15% in April, according to Bank of America’s Homebuyers Insight Report.
The findings come as the housing market struggles to regain momentum. The Federal Reserve’s aggressive rate hiking campaign pushed mortgage rates to the highest level in two decades in October, making it more expensive for potential buyers to purchase a home.
Higher rates have also prompted would-be sellers to stay put in their existing homes instead of giving up their low monthly payments, worsening the inventory crunch. Approximately 80% of current homeowners have an interest rate below 5%, according to Bank of America.
US pending home sales fell 8.5% in October to the lowest level in 20 years, according to the National Association of Realtors, with the Northeast being the only region that saw monthly gains in pending transactions. On a year-over-year basis, all four US regions recorded declines in sales.
“We are in a very unique housing cycle where homeowners are unwilling to list their property because they are locked in on those lovely 3%, 4% mortgage rates,” Lawrence Yun, National Association of Realtors chief economist, told Yahoo Finance. “They’re all smiling. Their monthly payments are low. Their housing wealth has risen greatly.”
But some relief may be coming to prospective homebuyers, just as they’re looking to push forward with purchases. 54% of homeowners are willing to move if they find a more affordable area, even if it means paying a higher mortgage rate, the survey showed. Other top reasons motivating current homeowners to sell were availability of a dream home, job opportunities, neighborhood amenities, and the need for more space.
Looking ahead to 2024, forecasts for a decline in borrowing rates will likely bring more buyers back to the market, Vernon added. “We expect to see rates come down as we head into the middle to latter half of next year,” Vernon said. “This adds confidence that while homebuyers may have short-term challenges from a rate perspective… they can refinance in the future.”
Since peaking at 7.79%, the average rate on the 30-year fixed mortgage has fallen five weeks in a row to 7.22%.