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Mortgage rates have reached a remarkable 7-month high, creating challenges for homebuyers as limited listings dominate the market. However, amidst this turbulence, many potential buyers remain poised to act when rates eventually decline, and a wave of new homes enters the market. While low inventory may seem daunting, it comes with a silver lining for sellers—their properties command higher prices.
Dampened Home Sales and Decreased Demand: Over the past four weeks, pending home sales experienced a 17% year-over-year decline, one of the most significant drops this year. This drop follows a similar pattern from last year when mortgage rates surged above 5%. Furthermore, early indicators of homebuying demand, such as mortgage-purchase applications and Redfin’s Homebuyer Demand Index, have retreated by approximately 7% compared to the previous month. However, there is a glimmer of hope as the Demand Index registered a 1% increase year-over-year, marking its first annual upturn over a year. It’s worth noting that a year ago, this metric plummeted due to rising rates.
Impact of Elevated Mortgage Rates and Limited Inventory: The past month has seen a decline in homebuying demand due to soaring mortgage rates and a scarcity of available homes. Average weekly rates have surged to an alarming 6.79%, the highest level recorded since November. Consequently, many potential buyers have been priced out of the market, with the average monthly housing payment for the typical U.S. homebuyer hitting a record high of $2,651, an increase of approximately $350 compared to a year ago. Moreover, limited inventory plays a significant role in restraining sales, with new listings plummeting by 23% year-over-year and a 3% drop in the total number of homes for sale. Remarkably, this marks the second consecutive annual decline in the last 12 months, following a slight decrease of 0.2% in the previous four-week period. However, the scarcity of homes on the market has resulted in the propping up of prices, as reflected by the median U.S. sale price experiencing a mere 1.9% decline year-over-year, the smallest drop observed in two months.
Buyers on Standby for Market Shifts: Despite the challenges faced by homebuyers, our colleagues at Bay Equity, Redfin’s mortgage company, report that many prospective buyers still need to abandon their plans. Instead, they remain ready to seize opportunities when mortgage rates decline to around 6% and more listings become available. Consequently, some buyers resort to all-cash offers, while others patiently await favorable market conditions before proceeding. Financially astute buyers are considering mortgage-rate buydowns or planning future refinancing options. In today’s housing market, limited listings provide a silver lining by bolstering prices, thereby allowing sellers to secure advantageous deals.
Leading Indicators and Regional Insights: Noteworthy indicators of homebuying activity in the current market include the average 30-year fixed mortgage rate, which surged to 6.79%, the highest rate recorded since November. Mortgage-purchase applications witnessed a 3% decrease during the week ending May 26, seasonally adjusted, marking a substantial 31% decline compared to the previous year. Redfin’s seasonally adjusted Homebuyer Demand Index, measuring requests for home tours and other services, also experienced a 4% decline compared to the last week, showing a 1% increase year-over-year. Google searches for “homes for sale” dipped by 12% compared to the last month and by approximately 13% compared to the previous year, showcasing a decrease in interest.
