With U.S. mortgage rates continuing their ascent toward 7%, would-be homebuyers are finding other ways to spend their money as they wait for better conditions.

“Consumers are spending in sectors that are not interest-rate sensitive, such as travel and dining out,” says Sam Khater, Freddie Mac’s chief economist.

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“Rate-sensitive sectors, such as housing, continue to be adversely affected… Homebuyers continue to face the compounding challenges of affordability and low inventory.”

While experts say buyers may find opportunities to seize in the spring, data indicates the gap between housing supply and pent-up demand only continues to grow.

30-year fixed-rate mortgages

The average 30-year fixed rate jumped to 6.73% this week, compared to last week’s average of 6.65%. A year ago at this time, the rate averaged 3.85%.

And rates may rise even further in the coming weeks, depending on the strength of the economy, predicts Nadia Evangelou, senior economist for the National Association of Realtors (NAR).

Evangelou says buyers should still be able to find some appealing opportunities come spring.

“Sellers continue to be willing to negotiate as there is still less competition in the market, with a couple of offers instead of four offers per home sale a year ago,” she explains, referencing NAR data from January.

“Inventory remains tight, but there are typically about 60% more new listings during March and August than the rest of the year.”

15-year fixed-rate mortgages

The average rate on a 15-year home loan shifted from 5.89% to 5.95% this week. That’s close to double what it was this time a year ago, when it averaged 3.09%.

While sellers may also feel daunted in this market — facing slower price growth, properties languishing longer on the market and a higher number of homes going unsold — some could get a boost to their bargaining power, suggests Realtor.com economist Jiayi Xu.

For example, recent sales data indicates a higher share of first-time buyers compared to last year, so sellers with starter homes may see more demand.

“In addition, the widespread implementation of hybrid working models provide employees more flexibility to choose where to live, allowing them to avoid expensive and congested urban centers,” Xu says.

“Furthermore, for sellers who are also buyers, it is important to note that they can still leverage their record-high equity, even if they have to adjust their expectations to lower asking prices.”

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US falls millions of homes short

Buyers and builders alike are facing a crisis of confidence, worsening the housing supply gap after a decade of underbuilding.

The mismatch between families and single-family home construction has widened to 6.5 million homes as of 2022, reports Realtor.com.

“Homebuilders have become more cautious in the face of rising unaffordability,” writes economic data analyst Hannah Jones.

“Homebuilders have pulled back on single-family construction as many would-be buyers cannot afford to buy a home given the current cost of financing. Instead, builders have transitioned their focus to the multi-family construction market, which will supply ample rental housing.”

Factoring in multi-family home construction reduces the gap but doesn’t eliminate it, bringing it to 2.3 million homes.

Mortgage applications begin to recover

Despite the challenging conditions, demand for mortgages climbed 7.4% from last week, according to the Mortgage Bankers Association (MBA). Refinance activity also increased by 9%.

However, this small recovery comes after two weeks of declines to very low levels, notes Joel Kan, vice president and deputy chief economist at the MBA.

“Comparing the application indices from a year ago, purchase applications were still down 42%, and refinance activity was down 76%,” says Kan.

“Many borrowers are waiting on the sidelines for rates to come back down.”

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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.