The housing market showed some signs of resilience in July as the National Association of Realtors reported a 0.9% increase in its index of pending home sales. This marks the second consecutive month of growth following a slump earlier in the spring.
Surprisingly, economists had anticipated a decline in home sales, but the data suggests otherwise. Lawrence Yun, the chief economist for the trade group, attributed this positive trend to the addition of new jobs, thus expanding the pool of potential home buyers.
However, it is important to note that these contract signings occurred when mortgage rates were still below 7%, as measured by Freddie Mac. The situation has since changed dramatically, with mortgage rates skyrocketing to a record-high 7.23% in recent weeks. Such steep increases, combined with low housing inventory and rising prices, have potentially hindered demand in August.
Yun acknowledges the temporary setback caused by rising mortgage rates and limited inventory. Real estate brokers confirm that buyers are still active in the market, albeit with a more discerning and cautious approach compared to the earlier stages of the pandemic.
Over the past year, higher mortgage rates have significantly impacted the housing market, causing fewer transactions for both buyers and sellers. Sales of previously owned homes have remained well below their long-term average throughout this period. Although pending home sales have shown slight improvement from the previous month, they are still down by 14% compared to the same period last year.
Furthermore, another early predictor of future home sales, the Mortgage Bankers Association’s index tracking loan applications for home purchases, experienced a decline in August due to rising rates. It reached its lowest level since April 1995. However, it should be noted that there was a slight uptick in activity last week.
As the housing market navigates through these challenging times, it remains to be seen whether the recent surge in pending home sales can be sustained. The current landscape, characterized by soaring mortgage rates, limited inventory, and cautious buyers, poses significant obstacles that need to be overcome for a more robust recovery.
Current Trends in the Housing Market
The housing market is experiencing a decline in purchase applications, which is predicted to impact the sales of previously owned homes, according to Joel Kan, the Mortgage Bankers Association’s deputy chief economist. However, amidst this slowdown, there are still buyers who are actively seeking to purchase properties at the current rate levels, either out of necessity or because they believe it is a more advantageous option compared to renting.
Buyers, however, are taking longer to make purchasing decisions due to the increased cost of financing a home and the limited supply of available properties. Tim Morgan, a Re/Max agent based in Hollis, New Hampshire, notes that buyers have become more selective as the rising prices have made it more expensive to buy properties that were once more affordable. While multiple offers are still being received, the volume has decreased from seven to ten offers down to just two or three.
In Miami, higher interest rates and uncertainty surrounding their impact on the housing market have led to a slowdown in what was previously a buying frenzy. Minette Schwartz, a Compass agent based in Florida, observes that buyers are now more informed and are taking their time to ensure that the properties they consider align with their needs.
Furthermore, the search for quality amidst higher interest rates has driven some buyers towards newly constructed homes. Kan from the Mortgage Bankers Association highlights that there have been reports of buyers expressing a preference for new construction. The reasoning behind this shift lies in the fact that if they are going to pay a significant amount for a house and have higher monthly mortgage payments due to interest rates, they may as well explore the option of investing in newly built properties.
These trends reflect the evolving dynamics in the housing market. Despite the decrease in purchase applications and increased costs, there remains a segment of buyers actively seeking opportunities. The market is adapting to these changes as both buyers and sellers adjust their strategies and expectations accordingly.
