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Rising prices, mortgage rates put home buyers in a tough spot

The housing sector is witnessing a mixed sentiment amidst persisting volatility in prices and interest rates. Though the positive job market conditions and wage growth have created a favorable atmosphere for prospective home buyers, affordability has taken a beating from the rising prices.

Signaling trouble for families looking to own a house, mortgage interest rates jumped last week to their highest level in four years, reflecting the Federal Reserve’s new monetary policy.

The country-wide disparity in home prices and inadequate supply of entry-level residential properties continue to be a major challenge, especially for first-time buyers whose number dropped considerably so far this year. Realty investors need to resolve the short-supply of single-family homes by focusing more on that category.

In March, the housing sector witnessed some hectic activity, continuing the recovery in the sales of pre-owned homes that started in February after two months of consecutive declines. The back-to-back increases show that demand was not considerably dampened by higher prices and interest rates. The sales growth exceeded market expectations.

The disparity in home prices and inadequate supply of entry-level residential properties continue to be a major challenge

A government report revealed that 5.60 million existing homes were sold in March, higher by 1.1% on a seasonally adjusted basis. Buyers were particularly encouraged by the consistent employment growth and favorable tax rates after the recent revision. The upturn is attributable to the strong rebound in demand in the Northeast and Midwest after the weather-induced lull in February.

While the stable demand is a sign of the economy bouncing back to the pre-crisis levels, it remains to be seen to what extent the market would battle the price pressures and supply shortage.

Sales could be negatively impacted by the high prices and supply constraints during the upcoming season, though the inventory position is seen improving in the coming months amidst strong building activity. The most affected will be people purchasing their first house, who constitute nearly a third of residential property customers.

The sharp fall in the sale of single-family homes is reflective of the persisting shortage in that segment. The pre-owned home segment has been witnessing supply squeeze for nearly three years.

If price pressures ease in the coming months as anticipated, more buyers would hit the market, but only if there is a proper supply-demand balance is in place.

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