The housing market in the United States saw a slight improvement in July, with an index measuring contract signings for home sales rising for the second consecutive month. However, the gains may be short-lived due to the recent surge in mortgage rates, which have reached their highest levels in decades.
According to the National Association of Realtors, the index of pending home sales increased by 0.9% in July, defying economists’ expectations of a drop. Lawrence Yun, the chief economist of the trade group, noted that job growth has expanded the pool of potential home buyers. However, it’s important to note that these contract signings occurred when mortgage rates were still below 7%, as measured by Freddie Mac.
In recent weeks, mortgage rates have soared as high as 7.23%, according to Freddie Mac’s weekly gauge. These higher rates, coupled with low housing inventory and rising prices, may have dampened demand in August. Yun acknowledged that “rising mortgage rates and limited inventory have temporarily hindered the possibility of buying for many.” Real estate brokers have observed that while buyers are still active in the market, they are becoming more discerning and less impulsive compared to earlier stages of the pandemic.
The higher mortgage rates have had a significant impact on the housing market over the past year, creating challenges for both buyers and sellers. This has resulted in fewer transactions, with sales of previously owned homes remaining well below their long-term average. Despite the slight uptick in pending home sales from the previous month, the measure is still 14% lower compared to the previous year.
Moreover, an early indicator of future home sales shows signs of retraction as mortgage rates continue to climb. The Mortgage Bankers Association’s index, which tracks loan applications for home purchases, reached its lowest level since April 1995 in August. However, it experienced a slight increase last week.
Overall, the housing market is grappling with the impact of rising mortgage rates and limited housing supply. While there are still opportunities for buyers, they are approaching the market with caution and deliberation. As the industry navigates these challenging conditions, it remains to be seen how the market will evolve in the coming months.
Impact of Low Purchase Applications on Sales of Previously Owned Homes
The current low level of purchase applications is expected to have an impact on the sales of previously owned homes, according to Joel Kan, the Mortgage Bankers Association’s deputy chief economist. However, despite this trend, not all buyers are putting their plans on hold. Kan mentioned that there are still buyers in the market who are willing to purchase homes at the current rate levels. They either have no other choice or believe it is more financially beneficial for them to buy rather than continue paying rent.
Buyers Taking Longer to Make Decisions
Buyers, on the other hand, seem to be taking longer to make purchasing decisions due to a couple of factors. Firstly, the cost of financing a home has increased, making it more expensive to buy compared to previous years. Secondly, there is a low supply of available homes for sale. Tim Morgan, a Re/Max agent in New Hampshire, stated that these factors have made buyers more selective. The same property that buyers would have easily purchased before is now being carefully considered due to the increased costs. Morgan also noted that while there are still competing offers, the number has decreased from seven to ten offers to two or three.
Miami Real Estate Market Slowdown
In Miami, the situation is slightly different. The higher interest rates and the resulting uncertainty in the housing market have caused a slowdown in what was once a buying frenzy. Minette Schwartz, a Compass agent based in Florida, explained that buyers are now more educated and are taking their time to ensure that a property aligns with their needs and preferences. This shift indicates that buyers in Miami are prioritizing quality and making informed decisions.
Shift Towards Newly Built Homes
The desire for quality and the impact of higher rates seem to be pushing some buyers towards newly built homes. Joel Kan from the Mortgage Bankers Association noted that there have been anecdotes about buyers considering new construction as a favorable option. Some buyers reason that if they are going to pay a significant amount for a house and face higher monthly mortgage payments due to interest rates, it may be more beneficial in the long run to invest in new construction.
In conclusion, the low level of purchase applications is expected to affect the sales of previously owned homes. However, there are still buyers in the market, albeit with more selective criteria. The Miami real estate market has experienced a slowdown due to higher rates, leading to a more cautious approach from buyers. The desire for quality has also contributed to an increased interest in newly built homes.
