Rapidly rising mortgage rates are compounding the affordability problems that have been caused by the record growth in home values. According to March Zillow Real Estate Market Reportmonthly mortgage payments on a typical US home are 19.5% higher than three months ago and 38% higher than a year ago.
Despite this, the pace and volume of sales accelerated in March, showing the depth of the pool of homebuyers willing and able to meet current asking prices.
The typical U.S. home is worth 20.6% more than a year ago, the 12th straight month in which a new record for annual home value growth was set. Mortgage rates, which were below 3% a year ago, entered March at 3.51%, rising to 4.54% during the month.
Rising home values and mortgage rates have pushed the monthly payment for a typical American home 38% higher than it would have been a year ago.
“Higher mortgage rates were expected this year, but the speed of their rise has been breathtaking,” said Jeff Tucker, Zillow’s senior economist. “Record mortgage rates have been a lifeline during the pandemic, keeping monthly payments in check even when prices have soared. March has been the biggest test yet of whether enough buyers can meet the new asking prices to keep home values at an all-time high, and the answer was ‘So far, yes.’ There will be a time when the cost of buying a home deters enough buyers to bring price growth back to earth, but for now there’s plenty of fuel in the tank as shopping season at home starts.”
After six straight months of declining inventory – a streak that lasted longer into the year than usual – 11.6% more homes were available in March than in February, the biggest jump in a month in Zillow records.
Although inventory is 22.5% lower than a year ago, the estimated 754,000 homes that were on the market in March are lower than any month before. January 2022. The number of newly listed homes in March jumped 35.8% from February to around 386,000, but remains 8.5% below the pace of new listings last March.
Buyers have proven that they remain ready to grab any inventory that comes their way. Newly pending sales rose 11.6% in March from February, as demand still outstrips supply, even with higher mortgage rates. The speed of sales also accelerated in March, increasing to nine days for a typical sale, compared to 11 in February.
Zillow’s home value forecast now calls for 14.9% growth through March 2023, down from a 16.5% growth forecast for the year ahead made in February. Zillow’s existing home sales forecast was also lowered, to 6.09 million sales in 2022, which would mark a slight drop of 0.5% from 2021.
Affordability headwinds – driven by sharp increases in mortgage rates – have strengthened faster than expected, but these numbers still point to a remarkably competitive housing market in the year ahead. The annual home value growth of 14.9% would have been the highest on record by Zillow before June 2021, and 6.09 million existing home sales would mark the second best calendar year total since 2006.
Typical U.S. rent rose 16.8% year-over-year to $1,904, from 17.2% annual growth in February, marking the first slowdown in annual rent growth since February 2021 country and continues to make it harder for potential first-time buyers to save for a down payment.