High Prices, Expensive Loans and Tight Credit Plague 'Gridlocked' Housing Market

In residential real estate, it’s not a buyer’s market or a seller’s market: it’s pretty much nobody's.

The housing market is in a state of “gridlock,” according to mortgage data company Black Knight, which released a report Monday detailing obstacles facing buyers and sellers at many points in the homebuying process. High mortgage rates, high standards for credit, and high prices are combining to thwart home sales. An index measuring the volume of people locking in rates for home purchases was down 34% the week ending March 25 compared to the same period in 2018, according to Black Knight data. 

“In a sense, the gridlocked housing market has been feeding on itself,” Andy Walden, vice president of enterprise research at Black Knight said in a statement. “While elevated interest rates continue to weigh on both affordability and demand, they’re simultaneously constricting supply as well, as would-be sellers who locked in ultra-low rates early in the pandemic continue to sit on the sidelines.”

High mortgage rates are at the heart of the market’s woes. The average rate for a 30-year mortgage hit 6.79% as of June 1, according to Freddie Mac. That’s a far cry from rock-bottom rates that got as low as 2.65% on average in January 2021, helping to fuel a pandemic-era housing boom in 2020 and 2021.

Mortgage rates, which track yields on 10-year Treasury notes, have been driven upward by investor concerns about high inflation as well as the Federal Reserves’ campaign of anti-inflation interest rate hikes. 

Homeowners who secured low rates in years past are reluctant to give them up—as of the fourth quarter of 2022, the most recent data available, 91.8% of mortgage-holders had rates under 6%, according to the Federal Housing Finance Agency. That’s quashed inventory, which has fallen since January in 95% of housing markets. Indeed, according to Black Knight, housing listings have recovered above pre-pandemic levels in only one major market—Austin, Texas.

Those low inventory levels have ensured that prices have remained high even as demand has fallen. Home prices were flat over the 12 months leading up to April, Black Knight said. 

Not only that, but banks have been getting choosier about lending. The average credit score of home purchasers hit its highest in April since at least 2000, when Black Knight began tracking data.