The current mortgage rates, hovering around 7%, are preventing potential homebuyers and sellers from participating in the housing market. Despite the lackluster performance of the spring homebuying season, there is a positive trend in the construction of new single-family homes, reaching a nearly two-decade high. This surge in construction offers a glimmer of hope for an increase in housing inventory by the following year.
In 2023, the traditional bustling spring homebuying season did not materialize as expected. Instead, the Federal Reserve's actions have dictated the timing of home purchases and sales. Thus far, the Fed's actions suggest a need for caution.
Over the four-week period ending on June 18, pending home sales declined by 16% compared to the previous year. Despite this relatively weak sales performance, there is a higher number of potential homebuyers than available homes on the market. New listings of homes for sale have decreased by 24% compared to last year, resulting in an overall 8% drop in the total number of homes for sale, the most significant decline in over a year.
The primary cause of this decline in both demand and supply can be attributed to the elevated mortgage rates. Throughout the spring season, average rates remained above 6%, driving monthly housing payments in the United States to near-record highs. Consequently, many potential buyers are holding off, anticipating a decrease in rates. Meanwhile, those actively seeking to buy are encountering difficulties due to the limited number of listings. Prospective sellers are reluctant to give up their homes, benefiting from relatively low mortgage rates. Almost all homeowners with a mortgage have rates below 6%.
As we enter the summer, there are positive signs in the market: 65% of adults recently expressed that it is a favorable time to sell a home, marking the highest level since July of the previous year, according to Fannie Mae's purchase sentiment index. Although this is unlikely to have a significant impact on new listings, it suggests that the inventory shortage may not worsen.
On June 21, the average daily rate for a 30-year fixed mortgage was 6.9%, a decrease from the previous month's half-year high of 7.14%. During the week ending June 15, the average rate was 6.69%, slightly lower than the previous week but still close to the highest rate since November.
In the week ending June 16, mortgage-purchase applications, adjusted for seasonal variations, increased by 2% compared to the previous week. This marks the second consecutive week of growth. However, purchase applications were down by 32% compared to the same period last year.
Google searches for "homes for sale" rose by 13% compared to the previous month during the week ending June 17. However, searches were down approximately 11% compared to the same period last year.
According to ShowingTime, a home tour technology company, touring activity as of June 18 has increased by 14% since the beginning of the year. In contrast, at the same time last year, there was a 4% decrease in touring activity. This increase in tours was relatively slow during the same period last year when mortgage rates were rising.
