Mortgage interest rates have risen in recent months, significantly impacting Massachusetts and other real estate markets, primarily leading to fewer homes for sale.
Mortgage News Daily's Rate Index, which tracks daily interest rates nationally, showed the 30-year, fixed-rate mortgage averaged 6.98 percent on July 20, 2023. Over the past month, Mortgage News Daily has reported interest rates as high as 7.22 percent (July 6) and as low as 6.87 percent (June 30 and July 13).
Freddie Mac's weekly Primary Mortgage Market survey for the week ending July 20, 2023, reported the average U.S. interest rate for the 30-year, fixed-rate mortgage loan declined to 6.78 percent compared to 6.96 percent the week before. A year ago, the 30-year note averaged 5.54 percent.
Many homeowners are reluctant to sell their homes and pay more because of much higher mortgage rates if they buy a new one. The situation has exacerbated the shortage of homes for sale, driving up prices and making it more difficult for prospective Massachusetts home buyers to find a home.
Real estate inventory in Massachusetts has been falling for years, but the Pandemic and higher interest rates have worsened the situation. According to the Massachusetts Association of Realtors, 4,563 single-family homes were for sale in June, a 41 percent drop from June 2022. In June 2017, there were nearly 17,000 single-family homes for sale. Condominiums for sale dropped 35 percent in June on a year-over-year basis.
Related: How to Buy a Home in Massachusetts
A study by Redfin released last month found that more than 92 percent of homeowners with mortgages currently have an interest rate below 6 percent. The number of homeowners with a mortgage rate below 6 percent is just below the record high of 93 percent in the middle of 2022.
It's interesting to note that many homeowners have secured mortgage rates much lower than 6 percent. In fact, 82 percent have a rate below 5 percent, while 62 percent have a rate below 4 percent. Additionally, more than 23 percent of homeowners have managed to secure a rate that is below 3 percent.
If homeowners were to sell their homes and buy new ones at today's interest rates, they would have to take on a significantly higher monthly payment due to the increased mortgage interest rates. As a result, many homeowners are simply staying put, even if they would like to move.
The "lock-in" effect is having a significant impact on the housing market. The number of homes for sale is at historic lows, driving up prices. In many Massachusetts cities and towns, homes sell for tens of thousands of dollars above their asking price, making it difficult for home buyers to find a home.
According to Redfin, 27 percent of U.S. homeowners considering listing their home within the next year would feel more urgency to sell if rates dropped to 5 percent or below. Almost half (49%) would feel more urgency if rates were to drop to 4 percent or less, and the share increases to 78 percent if interest rates dropped to 3 percent or below, an improbable situation any time soon.
In the current real estate market, home buyers face challenges when searching for a home; however, those who have had successful home searches have done so because of unwavering persistence. In other words, you can only find a home if you're looking.