Growing worries about the economy are hitting stocks and the housing market hard. The Dow Jones industrial average fell below 30,000 yesterday for the first time in 17 months. The S&P- 500 and NASDAQ also dropped.
With the fed raising interest rates again, average long-term mortgage rates saw their biggest one- week jump in 35 years. On the low end, they are around 5.3% and as high as 6.3%. This is a big jump compared to what we were seeing just a year ago averaging just 2-3%.
“The markets didn't react well to that increase, mainly because we were anticipating a 50 basis point increase, but this is what we need to get inflation under control," said Senior Loan Officer for Guild Mortgage Company Seamus Murphy. “As the fed rate goes up, we do tend to see the mortgage rates go up incrementally along with it."
But as interest rates surge past six percent, hitting their highest point since 2008, an estimated 18 million households, who would have qualified for a mortgage in January, are essentially frozen out of the market, no longer eligible for that loan.
“Housing affordability is a huge issue, when you look at our average median income and the average home price, there is a disconnect there," said Murphy.
But this increase in interest rates may be having a slowing effect on the housing market…
"It's a little bit of a scary time, but this is the first time in the last 3 years that I am seeing houses sell for under the list price, so if you are a buyer you might be able to get something at a little bit of a discount," stated Murphy, who went on to say he is also starting to see an increase in what's called seller concessions, where sellers pay for closing costs, or concessions in terms of price.
“42% of the homes active on the market have had a price reduction," said Gary MacDonald with the Reno/Sparks Association of Realtors.
Mortgage applications are down more than 15% compared to 2021, dropping 5% in May alone. That's prompting nearly one-in-five sellers to drop their price.
“If they were looking at a $500,000 house a year ago, are they looking at a $400,000 house now to keep the payments the same," said MacDonald.
And while increased rates will reduce borrower’s ability to acquire home loans and thus reduce some of the prices, Murphy says we shouldn't see a big dip here in Reno. "I think prices will begin to level off, I think there's a fear that prices may go down in our micro economy here in Northern Nevada, there's still limited inventory.”
Macdonald says that when it comes to the real-estate business here in Nevada, housing prices are looked at by end of month sales, so new numbers for housing prices for June should be coming out by the end of the month, which will give us a more accurate representation of what the rate hike did to the housing market here in the silver state. According to the Reno/Sparks Association of Realtors, the median home price here in Reno as of the end of May…$615,000.
