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Illustration by Lanette Behiry/Real Estate News; Shutterstock

Pending home sales slump as mortgage rates rise 

After dipping below 7% last week, interest rates ticked back up, while pending sales hit a four-year low.

May 30, 2024
3 minutes

Key points:

  • The National Association of Realtors announced that pending home sales dropped a dramatic 7.7% in April and are down 7.4% year-over-year.
  • Additionally, Freddie Mac reported that the average 30-year fixed-rate mortgage is back up over 7% this week.
  • Economists say the Fed is still looking for inflation to cool further before cutting rates, but any relief could be meaningful for priced-out homebuyers.

The latest housing market data points to an increasingly lopsided market. While U.S. home prices continue to sit at record highs, new data on pending home sales and mortgage rates raise concerns about affordability and the overall health of the housing market. 

Freddie Mac announced today that the average 30-year fixed-rate mortgage is back over 7% after dipping below that threshold the prior week. The average rate had hovered above 7% for five consecutive weeks prior to May 23. 

Persistently high rates appear to be weighing on buyers, with mortgage applications falling 5.7% compared to a week earlier, according to the Mortgage Bankers Association.

Sales down across all regions 

Buyer skepticism is also impacting sales, with pending home sales falling 7.7% in April to a four-year low. When compared to a year ago, pending transactions were down 7.4%, NAR reported. 

Pending home sales declined in all four U.S. regions, but the Midwest took the biggest hit, with sales falling 9.5% in April. In the West, home sales were down 8.5%, while the South saw pending sales dip 7.6%. The Northeast fared slightly better, with sales down 3.5%. 

As a forward-looking indicator, the latest pending home sales data could spell more trouble with home sale activity in the coming months.

The Fed still isn't eager to cut rates

NAR Chief Economist Lawrence Yun said that high interest rates impacted home sales in April, and any rate cuts by the Federal Reserve will be welcomed by buyers — though affordability will remain challenged. 

"Home prices are hitting record highs, but the pace of gains should decelerate with more supply," Yun added. "However, the prospect of measurable home price declines appears minimal. The few markets experiencing price declines will be viewed as second-chance opportunities for buyers to enter the market if those regions continue to add jobs."

Realtor.com economist Jiayi Xu said the Fed "is currently allowing data to guide its decisions," and the earliest a rate cut could come would be around September. And there's a good chance that we'll only see one rate cut this year, Xu added. 

"For mortgage rates to drop more significantly, the Fed needs to see more evidence of slowing inflation," Xu said in her commentary. "Overall, we anticipate that slowing inflation and economic growth will allow mortgage rates to decrease to around 6.5% by the end of 2024."

Odeta Kushi, Deputy Chief Economist for First American, suggested that a rate cut could be meaningful in getting tepid buyers back into the market.

"If the Fed cuts rates later this year, all else held equal, it should result in lower mortgage rates, boosting affordability and bringing buyers off the sidelines."

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