Buyers have more leverage this fall — but less enthusiasm
Hope is dimming for renewed housing market activity amid a slowdown in mortgage applications, a drop in pending sales and persistent economic uncertainty.
Key points:
- The 30-year fixed-rate mortgage ticked higher this week and is expected to remain around 6.3% in the early days of the federal government shutdown.
- But mortgage rates could become volatile if the shutdown drags on and deepens economic concerns.
- With fewer buyers looking for homes, those who are active in the market still have a chance at making deals with sellers who need to act now.
With the federal government shutdown firmly in place, the already sleepy housing market appears to be preparing for a slumber.
Mortgage rates ticked up slightly this week while loan applications and pending sales slowed significantly, the latest economic data indicates.
Mortgage rates rise, applications fall
According to Freddie Mac's weekly survey, the 30-year fixed-rate mortgage averaged 6.34% as of Oct. 2 — up from 6.3% one week earlier and up from the weekly average of 6.12% a year ago.
Meanwhile, mortgage applications fell 12.7% compared to one week earlier, with the Mortgage Bankers Association (MBA) attributing much of the slowdown to a decline in refinance applications. The unadjusted purchase index dropped 2% week-over-week but was up 16% year-over-year.
"After the burst in refinancing activity over the past month, this reversal in mortgage rates led to a sizeable drop in refinance applications, consistent with our view that refinance opportunities this year will be short-lived," said Joel Kan, MBA's vice president and deputy chief economist.
Delayed data could affect Fed action
Mortgage rates are expected to remain within a narrow range amid the government shutdown in part because there will be little government-released economic data to serve as a guide. While Freddie Mac continues to release mortgage rate survey results, the Bureau of Labor Statistics' Oct. 3 jobs report is expected to be delayed.
This lack of economic data will likely impact the Federal Reserve's next decision on whether to continue cutting short-term interest rates, noted Selma Hepp, chief economist at Cotality. The Fed, which cut rates for the first time this year at its September meeting, is next scheduled to meet Oct. 28-29.
"If these reports are delayed, the Fed may hold off on adjusting rates simply because they're flying blind, even if the broader economy calls for action," Hepp said. "If the market senses a delay in Fed actions due to missing data, it can spark extra volatility."
Pending sales slow following a decent August
After a healthy jump near the end of the summer, pending sales appear to be slowing down. An Oct. 2 Redfin report estimated that pending sales fell about 1% year-over-year in the four weeks ending Sept. 28 — the biggest drop in almost five months.
The report flagged high home prices (which were up 2.5% year-over-year), a slowdown in new supply and widespread economic uncertainty as the biggest market headwinds.
On a positive note, buyers have more negotiating power — and sales of starter homes are on the rise.
Deals still possible for home shoppers
"For buyers, there are deals to be made," said Jason Gale, a Redfin Premier agent in New Orleans. "People who need to move are still out there house hunting, and they're finding that it's a good time to negotiate with sellers, especially for homes that have been on the market for longer than a few weeks. Most buyers are able to get a discount on the price or significant help with their closing costs."
That increase in buyer leverage is translating to more price reductions, according to an Oct. 2 Realtor.com report. About 1 in 5 homes had a price reduction in September, with most cuts occurring at lower price points.
"September's trends show a housing market increasingly tilting in buyers' favor, with a rising inventory of homes for sale, longer days on market and more competitive pricing," said Danielle Hale, chief economist at Realtor.com.