The market slump? It’s ‘all about mortgage rates’
Pending home sales dropped significantly in April, but lower prices and rising supply could encourage buyers to return.
Key points:
- Pending sales were down 6.3% in April compared to March and down 2.5% year-over-year, according to NAR.
- Mortgage rates rose for a third straight week, averaging 6.89%.
- Purchase applications notched up, however, as inventory continues to rise and buyers are gaining negotiating power in some markets.
April showers dampened sales this year as Americans digested an onslaught of economic news and held off on signing contracts to buy homes.
Along with the sweeping April 2 tariff announcements and federal job cuts, the 30-year mortgage rate stayed close to 7% throughout the month. Those factors appeared to scare buyers off, causing pending home sales to fall 6.3% in April compared to March and drop 2.5% year-over-year, according to the National Association of Realtors.
'It is all about mortgage rates'
With many of the tariffs paused for now and the job market remaining solid, mortgage rates continue to be one of the biggest hurdles for potential buyers. The 30-year fixed-rate mortgage rose for the third straight week, averaging 6.89%. That's up slightly from the week before, according to Freddie Mac.
"At this critical stage of the housing market, it is all about mortgage rates," said NAR Chief Economist Lawrence Yun in response to the pending sales data. "Despite an increase in housing inventory, we are not seeing higher home sales. Lower mortgage rates are essential to bring home buyers back into the housing market."
Lower rates don't appear to be on the horizon, however. Rates bumped up earlier this month after Moody's downgraded U.S. creditworthiness, and analysts are concerned about rising debt based on the budget proposals being considered in Congress.
There's also been discussion of privatizing Freddie Mac and Fannie Mae, which could create more risk because of the loss of government guarantees.
"A privatized Fannie or Freddie could mean more innovation in mortgage finance," said Realtor.com Chief Economist Danielle Hale. "But it would also mean higher mortgage rates for home shoppers."
'We're in a new market'
Conditions may be tough for homebuyers, but lower home prices in some metros could ease affordability woes. Prices are down in 11 of the 50 largest metro areas, according to Redfin's latest market report, with some of the biggest declines in Oakland, Dallas and Jacksonville.
"Sellers are realizing we're in a new market, which is making them flexible," said Venus Martinez, a Redfin Premier agent in Los Angeles. "A lot of sellers, especially those who may have bought at the top of the market and need to sell, are willing to accept less money for their homes, give concessions to buyers, and even negotiate commissions."
More inventory spurring buyer activity
Lower prices and concessions may be encouraging some buyers to keep pressing forward. Purchase mortgage applications were up 2% from the week prior and 18% higher year-over-year, according to the Mortgage Bankers Association.
More supply also seems to be helping: "Increased housing inventory in many markets has been supporting some transaction volume, despite the economic uncertainty," said Joel Kan, MBA deputy chief economist.
New listings are up 3.9% compared to a year ago while active listings are up 11.9%, according to Redfin. Active listings nationally still remain below pre-pandemic levels, but that gap is decreasing.
The rise in inventory is not happening evenly across the U.S., however. A new Zillow analysis indicates the market remains quite competitive in the Northeast, with more than 10 people showing interest in each for-sale listing in cities including Buffalo, New York; Hartford, Connecticut; and Providence, Rhode Island.
The least competitive market right now is Miami, which has 2.6 engaged home shoppers per listing, followed by Houston (3.4) and New Orleans (3.5).