Last month, according to Atlanta Agent Magazine, 30-year fixed-rate mortgages closed in on 7% for the first time in over two decades. The rates rose from an already high 6.94% to a socking 7.08%. Last year, those same mortgages were roughly 3.14%
It’s more than just numbers in a report. It’s having real effects on the market — including the largest housing price plunge in six years. Experts have largely laid the rise in mortgage rates at the feet of the Federal Reserve for raising interest rates to fight inflation.
“As inflation endures, consumers are seeing higher costs at every turn, causing further declines in consumer confidence this month,” Freddie Mac chief economist Sam Khater said in a press release. “In fact, many potential homebuyers are choosing to wait and see where the housing market will end up, pushing demand and home prices further downward.”
According to the Atlanta Realtors Association’s latest market brief, residential sales were down in the city for August by 23.3% compared to the previous year. The median home sales price for the summer month was $408,000.
“The Median Price remains strong in Metro Atlanta at $408,000 which is up 13.6% over this time last year,” Atlanta Realtors Association President Karen Hatcher said in the report. “This continues a trend of year over year double digit increases every month since August 2020.
“On a positive note for buyers, inventory is now up nearly 33% over last year. While sales are now down, this still represents just under 2 months of homes available for sale which keeps us still deeply in a seller’s market. Demand is still strong but cooling slightly with the median days on market at 10 and average at 20. This is historically extremely low and overall, the Atlanta Market remains strong. With our population growth, it’s still a great time to sell.”
The Georgia Association of Realtors reported that median home sales prices were up 13% year over year in September, with inventory up 39% and supply up 60%. The state’s median home sales price was $340,000.
Last month, according to the Georgia MLS, Atlanta’s median home sales price took another steep drop — having hit $379,970. Total units sold year over year for the month dropped by 32.9%.
To afford a home in Georgia’s capital city right now, hopeful homeowners need a total household income of $116,890 before taxes if they wish to remain within the 28% debt-to-income ratio threshold suggested by most accountants. According to the 2020 U.S. Census, the median Atlanta household income is only 54.9% of that total at $64,179.
According to Realtor.com, the rising mortgage rate woes that are making homes increasingly unaffordable in Atlanta can be backtracked to the current gap between mortgage rates and treasury yields.
“By contrast, benchmark 10-year U.S. Treasury yields are up around 2.5 points,” Telis Demos of Realtor.com reported. “What this means is that the gap — or spread, in financial lingo — between mortgage rates and Treasury yields has ballooned.
“For the past decade, the spread between a measure of average national mortgage rates and 10-year Treasury yields has averaged 1.8 points, according to figures tracked by Autonomous Research. This year began right around that level. But with Treasurys (sic) yielding over 4%, the spread now at roughly 3 points is about as high as it has been this century.”
Jeana Curro, head of agency MBS strategy at Bank of America, told the website that the gap between mortgage rates and Treasury yields could widen even further in the near future — worsening national housing market woes.
“Over the past few sessions, there’s enough investor interest to keep spreads contained, but not enough to drive them tighter,” she said. “The risk is that without that demand, spreads could get wider.”
According to National Association of Realtors senior economist and director of forecasting Nadia Evangelou, the struggling economy and rising mortgage rates have made homes largely unaffordable on a national scale — ultimately affecting Black communities disproportionately.
“Rising mortgage rates have increased the monthly mortgage payment by $1,000, and minority groups may be impacted more heavily,” she said in a press release. “Although mortgage rates reached all-time lows in 2021, not everybody was able to benefit from these low rates. During 2019 and 2021, the White homeownership rate rose by nearly 3 percentage points, while the homeownership rate for Black Americans rose by 2 percentage points. With 7% mortgage rates, only 15% of Black households can currently afford to buy the typical home compared to 30% of White households. Thus, Black families may fall further behind in homeownership compared to their White counterparts.”
In order for homes to become affordable once again, the Federal Reserve will first have to get a firm grip on the inflation. The central bank is not purchasing agency mortgage-backed securities as it has during previous housing market crises, reducing many private banks’ appetites for buying related bonds.
According to Realtor.com, the Federal Reserve and private banks own roughly 75% of the agency MBS market. With the Federal Reserve fighting inflation, not purchasing mortgage-backed securities and private banks backing off of related bond investments, the gap is likely to continue to widen.
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