In today’s mortgage market update, we’re seeing interest rates forecast to stay low, which comes as great news to prospective borrowers; however, lack of inventory in the real estate market could make finding a home difficult for some buyers.

Tight Inventory Restricting Sales

Although spring is usually the busiest season for home buying, this year’s activity was a little lackluster. Existing-home sales held steady, but the overall amount of home sales in the U.S. was less than what it could be. This is due in large part to tight inventory. Without as many homes for sale, there simply isn’t enough supply to meet the demand. Sure, interest rates are likely to stay low, but it doesn’t do much good if borrowers can’t find homes. 

According to data from the National Association of Realtors® (NAR), the inventory of homes for sale nationally in April was 3.6 percent lower than in April 2015. NAR also reports that despite ongoing inventory shortages and faster price growth, existing-home sales sustained their recent momentum and moved higher for the second consecutive month.

The supply numbers are even tighter in certain local markets: Inventory is down 32 percent in Portland, Oregon, from a year ago; down 22 percent in Kansas City; down 21 percent in Dallas and Seattle; down 17 percent in Charlotte, North Carolina; down 12 percent in Atlanta; down nearly 10 percent in Chicago; and down 8 percent in Los Angeles, according to data from Zillow. Houston and Miami are seeing big gains in supply, due to economic issues specific to those markets.

“The struggle will continue for home shoppers this summer,” said Zillow chief economist Svenja Gudell. “New construction has been sluggish over the past year; we’re building about half as many homes as we should be in a normal market. There still aren’t enough homes on the market to keep up with the high demand from every type of homebuyer.”

“In many markets, those looking to buy a home in the bottom or middle of the market will need to be prepared for bidding wars and homes selling for over the asking price. This summer’s selling season’s borders will most likely be blurred again, as many buyers are left without homes and will need to keep searching,” added Gudell.

The decline in real estate inventory is most severe in the lower-priced tier of the market. Homes in the top tier are seeing gains and therefore show more price cuts. Sixteen percent of top-tier homes had a price cut over the past year, compared with 11 percent of bottom-tier homes and 13 percent of middle-tier homes, according to Zillow.

Mortgage Rate Summary

  • Mortgage Rates Currently Trending: Neutral
  • 7 Day Mortgage Rate Forecast: Neutral
  • This Week’s Potential Volatility: Low

As of June 1, rates are trending unchanged, as last week’s MBS market improved by +2bps. This change wasn’t significant enough to improve mortgage rates or fees, so rates will most likely hold steady for this week.

As for the coming week, it will depend on the economic data being released later this week, including the May employment data coming out on Friday. In the meantime both ISM indexes, personal income and spending, consumer confidence index, construction spending, factory orders and the Fed’s Beige Book will also be watched carefully.

Volatility is anticipated to be low this week; however, that could quickly change once the employment data comes out this Friday. We’re at very important levels for mortgage rates, so any significant move downward in the MBS could be a sign for a medium term upward trend in rates.