The housing market experienced a significant downturn in March, reaching its lowest point since the global financial crisis. High borrowing costs and dwindling consumer confidence in the economy contributed to this decline.
Market Analysis
March saw home sales plummet to the lowest levels recorded since 2009, dashing hopes for a market rebound. According to the National Association of Realtors, sales of existing homes dropped by 5.9% from February, settling at an annualized rate of 4 million units.
This decline is particularly striking as March typically signals the beginning of the spring buying season. However, amidst financial market volatility and waning consumer confidence spurred by economic concerns and tariff policies, the market faced a challenging landscape.
NAR Chief Economist Lawrence Yun noted, “I had anticipated that with more inventory we’d see more transactions, but the data make it clear that mortgage rates and affordability challenges are holding back buyers.”
Over recent years, home sales have been sluggish due to soaring prices and elevated mortgage rates. Mortgage rates surged to 7.8% in 2023 after dropping to a low of 2.7% in 2020, posing a dual threat to the market.
The lock-in effect from low inventory in 2023 and 2024 hindered sales, with economists predicting a sales uptick in subsequent years. Yun highlighted the pivotal role of mortgage rates in influencing the housing market, noting that recent stock market fluctuations may have deterred potential buyers.
Impact of Mortgage Rates
Typically aligned with the 10-year Treasury yield, mortgage rates have fluctuated in response to market volatility. As of the latest data, the 10-year Treasury yield stands at 4.3%, with a 6.8% interest rate on a 30-year fixed mortgage reported by Freddie Mac.
Yun pointed out, “Under the normal spread between the 10-year and mortgage rates, the mortgage rates today should be about 6.3% or even 6%, but instead, we’re closer to a 7% rate.” He attributed this anomaly to factors such as Federal Reserve actions and foreign countries’ maneuvers in the mortgage-backed securities market.
The higher rates are a likely consequence of complex market dynamics, including geopolitical tensions and trade war strategies. Yun emphasized the need for a comprehensive understanding of these factors to navigate the evolving mortgage rate landscape.
