HOME PRICES AND BORROWING COSTS CLIMB
Higher mortgage rates infl uence buyer and seller motivation. The average 30-year fi xed-rate mortgage climbed to a fi ve-month high of 7.0 percent in April 2024, as the market responded to persistent infl ationary pressures and Federal Reserve policy. Increasing borrowing costs, meanwhile, encouraged more prospective buyers to sit tight on the sidelines, refl ected in existing home sales sliding to a three-month low in April. This reduction in purchase activity, however, coincided with a decline in home listings — which fell 1.4 percent month-over-month — implying that higher borrowing rates are also impacting sellers' willingness to trade out lower rate mortgages in the current climate. That combination of softer buyer demand and easing sell-side motivations, in turn, pushed the median home price to the second-highest fi gure on record at $405,400 in April. A concoction of near all-time high home prices and elevated mortgage rates may keep the housing market exceptionally tight in the coming months.
Sellers may struggle to adapt, keeping inventory low. Based on a Freddie Mac calculation, it is estimated that more than 60 percent of current homeowners had interest rates below 4 percent at origination and roughly 85 percent had rates under 6 percent. As the average 30-year fi xed-rate mortgage has now held near 7 percent through late May, those conditions may keep home listings muted for the foreseeable future. Life circumstances will dictate a natural level of home listings, but owners with the fl exibility to sit tight may do so in the near term. In April 2024, the number of existing homes for sale was almost 370,000 houses shy of the trailing-decade average for that month, providing reinforcement for values.
Homebuying barriers refl ected in apartment indicators. Luxury tier rentals are gaining appeal amid historically extreme cost-saving benefi ts relative to buying a house. As home prices and borrowing costs rose in April, the rate of signed renewals at Class A apartments improved to an eight-month high. Additionally, the average monthly income of a luxury tier renter hit the second-highest fi gure on record, refl ecting an expanding tenant pool that includes more higher-earning households.
**For Loans Outstanding as of 2023 Sources: Marcus & Millichap Research Services; Mortgage Bankers Association