Homebuyers these days are facing much higher costs of ownership compared to a year ago, pushing most to the sidelines. Mortgage rates and home prices are high and inventory is paltry, resulting in a largely frozen housing market.
Nearly two-thirds of Americans say they are waiting for mortgage rates to drop before entering the market, according to a survey released this week by BMO Financial Group, the eight-largest bank in North America. Among those who plan to purchase a home soon, only 6% expect to do so this summer, which is supposed to be the high season for real estate agents. Refinancing plans are also on hold: among those planning to refinance, 81% said they are waiting until rates drop.
The survey also found that 68% of Americans plan on using loans from their financial institution and/or lines of credit to help finance their home purchase. BMO said that 46% of Americans plan on using some of their personal savings to help pay for their home purchase, such as a down payment. Nearly a quarter of people surveyed said they expect financial help from family or friends when they purchase a home.
Mortgage rates have remained stubbornly high for virtually all of 2023. On Thursday, rates were recorded at 6.94%, just below the recent high of 7.14% in late May. The Mortgage Bankers Association on Wednesday said that mortgage applications for the week ending June 2 were down about 30% from the year prior, a direct consequence of 10 consecutive rate hikes from the Federal Reserve.
Still, there is optimism that the housing market is at the bottom and will gradually improve.
“If we can achieve a true soft landing [for the economy], which it looks like we might be able to pull off, then … rates will start to kind of slowly go down,” said John Toohig, the head of whole loan trading at Raymond James. “For the housing market, this is the bottom; we’ll get past this. But it’s not a slam dunk, don’t get me wrong. Nobody’s doing backflips here. Nobody’s doing high-fives. Nobody’s saying, “Hey, let’s break out the steaks and put away the hotdogs.” You know, it’s just incremental. … We need to see a 200 basis-points drop [in rates] before you see any meaningful refinance business.”