Buyer demand holds — even as mortgage rates tick back up
While some sellers seem to be reacting to the shift toward a buyers market, stubbornly high mortgage rates aren’t making the transition easy for buyers.
Key points:
- Mortgage applications have dropped off, indicating borrowers are already reacting to the rise in mortgage rates.
- Inflation is expected to keep mortgage rates elevated into the second half of 2025, which likely means the market will remain sluggish.
- Increases to the median home asking price are slowing, a sign that more sellers are willing to negotiate with buyers to complete a transaction.
As the sleepy housing market stumbles through the dog days of summer, sellers appear to be realizing that conditions are slowly shifting in buyers' favor.
The median asking price for a U.S. home the past four weeks ending July 13 was $407,000, according to Redfin's latest weekly report. While up 2.9% compared to a year ago, this is the smallest increase in more than four months.
With the median sale price up just 1.7% year-over-year and wages up by over 4% for the same period, affordability is starting to improve for buyers, the report suggests.
Meanwhile, active listings are up nearly 12% year-over-year, though new listings are declining. Homeowners are already reluctant to trade in lower mortgage rates, so the switch to a buyers market may also slow down new listings.
"As home prices soften, sellers are going to be further reticent to sell because they are less likely to get the price they want for their home," said Lisa Sturtevant, chief economist at Bright MLS.
Mortgage rates climb — again
Mortgage rates aren't helping the affordability problem that many prospective buyers are facing. The 30-year fixed-rate mortgage average ticked up this week to 6.75%, according to Freddie Mac. That's up from 6.72% a week ago and right around the 6.77% average this time last year.
As mortgage rates steadily increased in recent weeks, mortgage applications slowed down, according to the Mortgage Bankers Association. For the week ending on July 11, seasonally adjusted purchase applications dropped 12% from one week before, indicating that applications "remained sensitive to both the uncertain economic outlook and the volatility in rates," according to Joel Kan, MBA's vice president and deputy chief economist.
With existing home sales still tracking below last year, it appears either prices or rates need to soften further to spark an uptick in market activity. At the current 30-year average rate, a buyer "needs an income of nearly $130,000 to qualify to purchase the median-priced home," Sturtevant said.
With the median income nationally at about $80,000, that gap likely means the market will remain slow for the rest of the year.
Why are mortgage rates stubbornly high?
Getting 30-year mortgage rates down closer to 6% may prove difficult given the current economic conditions. While President Donald Trump has demanded the Federal Reserve lower short-term interest rates, doing so could actually lead to a rise in mortgage rates, according to Matthew Graham, chief operating officer at Mortgage News Daily.
In a July 16 blog post, Graham explained that the "Fed Funds Rate does not dictate mortgage rates even though the two can generally and broadly correlate over time," adding that they correlate when they share common motivations. "If the Fed were to cut rates in a more arbitrary way, it could actually be bad for longer term rates like mortgages."
Inflation levels will have a strong influence on mortgage rates. Inflation is ticking up and is expected to keep rising as the Aug. 1 tariff impacts are felt, a factor that continues to raise concerns about stagflation.
Buyer demand persists
Despite these challenges, there are some positive signs for the housing market. Demand is still out there, according to Redfin's report, which found that home tours and Google searches remain higher than a year ago. As sellers become more willing to negotiate on price, pent-up demand could translate to more sales.
"Buyers should look at a lot of homes and make a lot of offers — even if they're low or below market value — as more and more sellers are willing to make a deal," said Jim Fletcher, a Redfin Premier agent in Tampa, Florida.
Builder confidence is up — but not by much
There has been a "slight boost" in home builder confidence this month due in part to the extension of tax cuts first introduced in 2017, according to the National Association of Home Builders.
The builder confidence index was at 33 in July, up one point from June. Despite the slight uptick, builder confidence is still near its lowest level in three years as tariff concerns and general economic uncertainty continue weighing on the industry.