April 21, 2022, 6:54 AM EDT

By Martha C. White

Buying a first home just keeps getting harder. The median price for an existing single family home hit a record $375,300 in March — a 15 percent jump over March 2021 — as mortgage interest rates climbed and inventory remained tight, according to data released Wednesday from the National Association of Realtors.

Existing home sales fell by 2.7 percent in March compared to the previous month, bringing the adjusted annualized rate to 5.77 million units, and sales were down 4.5 percent compared to March 2021. The news comes just one day after the Commerce Department reported that single-family housing starts fell by 1.7 percent in March, compared to February.  

Industry observers say while scarce inventory is a major factor, the extent of the slowdown — coming at a time of year when the housing market normally picks up steam — is a reflection of the rapid run-up in mortgage rates. According to Mortgage News Daily, the average rate on a 30-year fixed mortgage hit 5.35 percent Tuesday, a leap of more than 2 percentage points from a year ago, when the average was 3.2 percent, and the highest rate in more than a decade.   

Higher rates have had a rapid impact on mortgage demand: Weekly data from the Mortgage Bankers Association released Wednesday found that the number of mortgage loan applications fell 5 percent from the previous week.

“In a housing market facing affordability challenges and low inventory, higher rates are causing a pullback or delay in home purchase[s],” commented Joel Kan, associate vice president of economic and industry forecasting for the MBA, when the data was released.  

Higher rates are yet another piece of bad news for first-time homebuyers already grappling with scarce inventory and soaring prices. But those same factors may help ease the frenzy in another part of the market that has been putting a squeeze on inventories: the market for second homes. 

While millions of people relocated permanently as remote work and school became the norm in 2020, many homeowners who could afford to hold on to their first homes bought second homes. In some towns, home prices climbed so high, so fast that local residents were priced out of the housing market, and sometimes the rental market, too. 

February marked the first time in nearly two years that second home demand, as measured by mortgage rate locks, actually dipped below demand for first homes, according to online brokerage Redfin. Demand for vacation homes was still above pre-pandemic levels in March, but Redfin Chief Economist Daryl Fairweather said the one-two punch of higher mortgage interest and thousands of dollars in new fees could prompt second-home buyers to change their mind. “When it’s an optional purchase, people get more sensitive and may decide it’s better to rent or stay in a hotel,” she said.

The new fees are being imposed on second-home buyers by the Federal Housing Finance Agency. Beginning April 1, the agency raised upfront fees on second-home mortgages to between 1.125 percent and 4.125 percent, depending on how much of the home’s value the owner is financing. 

Previously, only second-home buyers with very small down payments were assessed this fee, which topped out at a modest 0.25 percent

While not the agency’s only goal, the FHFA indicated that helping to level the playing field and foster primary homeownership, particularly among lower-income and first-time homebuyers, was one factor driving the higher fees.

The fees are also meant to weed out buyers who may run a higher risk of defaulting on loans held by Fannie Mae and Freddie Mac, which together account for close to 60 percent of outstanding mortgages in the U.S. 

Back to All News