Mortgage rates have reached a seven-month high, causing a slowdown in the housing market. With limited listings available, potential homebuyers are waiting for rates to decline and more homes to enter the market before making a move. However, the limited inventory has a silver lining for sellers as it supports higher prices for the homes they do list.

Compared to the same period last year, pending home sales have dropped by 17% during the four weeks ending on May 28, marking one of the largest declines since the beginning of the year. This decline is particularly significant because pending sales were already decreasing last year when mortgage rates surged past 5%.

Indicators of homebuying demand, such as mortgage-purchase applications have dipped in earlier stages of the house hunting process. Both measures are down approximately 7% compared to the previous month. However, the Demand Index has seen a 1% increase from the previous year, representing the first annual upswing in over a year. It is important to note that this measure was rapidly declining a year ago due to rising rates.

Over the past month, homebuying demand has decreased due to elevated mortgage rates and a scarcity of available homes. Weekly rates have hit their highest level since November, reaching an average of 6.79%. This has made homeownership unaffordable for many, as the typical monthly housing payment for U.S. buyers reached a record high of $2,651, an increase of approximately $350 from a year ago.

Limited inventory also contributes to the decline in sales, with new listings dropping by 23% compared to the previous year, and the total number of homes for sale decreasing by 3%. These figures mark the second annual decline in 12 months, with the first occurring in the preceding four-week period when they fell by 0.2%. Despite the limited supply, the median U.S. sale price has only declined by 1.9% year over year, the smallest decrease in two months.

Some buyers are submitting all-cash offers, while others have temporarily paused their search, waiting for mortgage rates to decrease and more listings to enter the market. Financially astute buyers are taking advantage of mortgage-rate buydowns or planning to refinance in the future. Despite the challenges, the limited listings have a positive aspect as they maintain higher prices, benefiting sellers who can still achieve favorable prices.

Key indicators of national homebuying activity in the country's 50 most populous markets are as follows:

  • For the week ending June 1, the average 30-year fixed mortgage rate was 6.79%, the largest weekly increase since October, and the highest rate since November. On May 31, the daily average stood at 6.88%.
  • During the week ending May 26, mortgage-purchase applications decreased by 3% compared to the previous week (seasonally adjusted), and were down 31% from the previous year.
  • Google searches for "homes for sale" were down 12% from the previous month during the week ending May 27th
  • The average sale-to-list price ratio, which measures how close homes are selling to their final asking prices, was 99.7%. That’s the highest level since August but is down from 102.5% a year earlier.
  • The monthly mortgage payment on the median-asking-price home hit a record high of $2,651 at a 6.79% mortgage rate, the current weekly average. That’s up 15% ($348) from a year earlier.
  • Pending home sales were down 17% year over year, the second-biggest decline since January. The biggest was a week earlier, when pending sales declined 17.1%.
  • Touring activity as of May 29 was up 2% from the start of the year, compared with a 6% increase at the same time last year, according to home tour technology company ShowingTime.

Now that the debt ceiling has been raised and the risk of the United States going into default is no longer over the markets, we should start to see stabilization in the bond market and it is expected that interest rates should drop a bit.  Some analysts from the Mortgage Bankers Association expect that the 30 year fixed rate will be back down to the mid 5's by the end of the year. 

This is an excellent time to find the home you are looking for and buy it.  You should be in a good position to refinance within a few months and take advantage of more favorable terms as they become available.  Our local market is still experiencing very low inventory, so we do not expect to see the prices dropping in the near future.  

Home sellers can expect their homes to receive substantial showing traffic if they are marketed aggressively and priced properly.  Although the leading indicators on home searches like Google are down, there are still plenty of qualified Buyers looking for nice homes in the market.  Our local economy remains stronger than the overwhelming majority of the country and it appears that it will stay that way for the foreseeable future.  

Please let us know if you have any questions at all.  We will be happy to answer them for you and help you anyway that we can.