Mortgage rates climbed to their highest level in seven years last week as home sales slowed in April, and the market remained constrained by a lack of inventory.
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The 30-year fixed mortgage rate climbed to 4.66% this week, which marks its highest level since May 2011, according to Freddie Mac. Rates rose 15 out of the first 21 weeks of this year, the largest share since at least 1972.
Meanwhile, the National Association of Realtors (NAR) said on Thursday that existing home sales fell 2.5% in April, to a seasonally adjusted annual rate of 5.46 million. Experts had only predicted a decline of 0.2%. April’s drop follows two consecutive months of increases.
A lack of inventory has hurt sales as home construction per household nears its lowest level in 60 years, according to the Kansas City Fed. This comes a decade after a construction bubble produced a massive amount of excess supply and helped to precipitate the financial crisis.
The National Association of Home Builders predicts there will be fewer than 900,000 new home starts this year, even though the market could absorb 1.2 million to 1.3 million, indicating another year of underbuilding.
Higher mortgage rates could also exacerbate the inventory crunch if they deter current homeowners from selling and buying a new property at those higher rates.
A lower supply of homes, coupled with strong demand, means that prices rise, adding more obstacles for first-time buyers. The NAR said home prices rose in April, marking their 74th month of consecutive year-over-year gains. The median home price was $257,900 last month, up more than 5% from the year prior.
Higher borrowing costs could worsen the outlook for would-be first-time buyers.