Soaring Mortgage Rates Have Homebuyers Bowing Out

The hot housing market may finally be reaching a turning point, as rapidly rising mortgage rates and surging prices for just about everything squeeze household budgets and force more would-be buyers out of the game, a new report shows.

The housing market lost a little steam in March, as sales of existing homes fell 2.7% from February on a seasonally adjusted basis—the second straight month of declines and the lowest level since 2020, the National Association of Realtors (NAR) said Wednesday. With demand for houses cooling some, the number of homes on the market increased for the first time in eight months, rising to 950,000, an 11.8% increase from the record low inventory of 850,000 seen in January and February.

Surging mortgage rates have dramatically impacted the affordability of homebuying over the last few months. The average rate for a 30-year fixed mortgage rose to 5.2% the week ending April 15, reaching its highest since 2010, the Mortgage Bankers Association said. Inflation, running at 8.5%, its highest in four decades, has also taken a toll on household budgets. Those factors are changing the dynamics of the pandemic-era housing market, which has been characterized by high demand for homes, very few for sale, and rapidly rising prices due to fierce competition among buyers.

"The housing market is starting to feel the impact of sharply rising mortgage rates and higher inflation taking a hit on purchasing power," said Lawrence Yun, the NAR’s chief economist, in a press release. "Still, homes are selling rapidly, and home price gains remain in the double-digits."

While Yun and other economists predict these trends will soon restrain soaring home prices, the slowdown hasn’t happened yet: The median home sold for a record high of $375,300 in March, a 4.5% increase from February and a 15% increase from March 2021, the NAR said.

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