Pending sales defy expectations, spark hope for a rebound
Mortgage rates continued to decline in another positive sign for the market. But new listings lost steam in June amid ongoing economic uncertainty.
Key points:
- Pending home sales increased between April and May, surprising forecasters who expected to see the spring slowdown continue.
- Mortgage rates also dropped for the fourth straight week, though rates remain in a narrow range near 7%.
- The economic data isn’t all rosy, however: New listings are losing momentum, and pending sales appear sluggish so far in June.
While the real estate market remains slow for this time of year, this week's economic data suggests there are promising signs that the market could improve over the summer.
Pending home sales rose unexpectedly in May, defying forecasts of a year-over-year drop with a 1.8% increase between April and May — up 1.1% compared to May 2024, according to the National Association of Realtors.
Lawrence Yun, NAR's chief economist, attributed the rise in pending sales to steady job gains and rising wages.
"Hourly wages are increasing faster than home prices," Yun said. "However, mortgage rate fluctuations are the primary driver of homebuying decisions and impact housing affordability more than wage gains."
Mortgage rates continue dropping
Buyers also got some good news on the mortgage rate front. Freddie Mac's weekly survey showed the 30-year fixed-rate mortgage averaging 6.77% as of June 26, down from last week's 6.81% average. The 15-year fixed-rate mortgage meanwhile averaged 5.89%.
Mortgage News Daily, which uses a different set of metrics than Freddie Mac to determine rates, pegged the daily rate at 6.79% on June 26, the lowest level for its survey in more than two months.
A steady decline in mortgage rates is occurring because investors are starting to price in interest rate cuts, possibly starting in September, according to Samir Dedhia, CEO of One Real Mortgage.
"That growing optimism, along with a steady flow of moderate economic data, has helped reduce pressure on mortgage-backed securities, creating room for mortgage rates to slide slightly without major economic shifts," Dedhia said.
More market activity on the horizon?
There was also an uptick in mortgage applications this week, according to the Mortgage Bankers Association. Applications were up 1.1% overall compared to the week before, an increase that was driven by refinance applications. Purchase applications were down compared to one week prior but were still up 12% compared to a year ago.
The latest economic data offers some hope for better sales activity in the second half of the year, according to Odeta Kushi, deputy chief economist at First American.
"Even this modest increase in pending home sales is a welcome sign for a beleaguered housing market," Kushi said. "While overall sales activity remains subdued, the market has shown some tentative signs of improvement."
Headwinds remain strong
Despite the positive economic indicators, there are other signs that the market will remain challenging. While new listings were up 2.5% year-over-year, that increase is the smallest seen in five months, according to Redfin's rolling four-week report. Meanwhile, pending home sales dipped 2.3% year-over-year for the four weeks ending on June 22 following the uptick in May.
With the prime selling window passing, many who don't need to sell their homes right away are holding off, said Kathy Scott, a Redfin Premier agent in Phoenix. Scott's advice for sellers? Set realistic expectations.
"Talk to your agent about the market in your exact neighborhood: How long are homes taking to sell, are they typically selling below asking price, and what are sellers doing in terms of repairs and concessions to get deals done? Price fairly based on those numbers," Scott advised in a Redfin press release.
There is a silver lining: Redfin's Homebuyer Demand Index, which measures homebuyer demand indicators like home touring, was up 6% over the past two weeks.
Overall, there exists a mixture of hope and fear in today's real estate market, according to Selma Hepp, chief economist at Cotality.
"Fears that the economy will continue to deteriorate for the next six months are fueling hesitation among many households to make large purchases," Hepp said. "Still, compared to the high levels of tariff-related anxiety in April, May has seen a rebound in confidence as tariff concerns have faded and equities have recovered."
And if the Federal Reserve changes its course and takes action on rate cuts this summer? That "could be what some are hoping for," Hepp said, "though a rate cut may not necessarily bring mortgage rates much lower or boost affordability."