‘Crisis of confidence’ holding buyers back despite lower rates 

Mortgage rates have fallen for a third straight week, inching back toward the elusive 6% threshold last seen in February. Freddie Mac pegged the average 30-year fixed-rate mortgage at 6.23% on Thursday, down from 6.3% a week ago. Last year at this time, rates were nearly 60 basis points higher at 6.81%.

That would be welcome news in more stable times, but with geopolitical concerns creating unease, would-be buyers and sellers remain skittish.

Rate improvements may not quell buyer anxiety: With home sales off to a slow start this year, "American real estate markets badly need these lower rates," said Joel Berner, senior economist at Realtor.com. Yet, Berner said, "would-be homebuyers seem to be struggling with a crisis of confidence despite the fact that the market has turned in their favor" — due, at least in part, to the economic instability stemming from the ongoing war in Iran.

Bright MLS Chief Economist Lisa Sturtevant echoed that sentiment, noting that in today's uncertain environment, a temporary dip in rates may not be enough to move the needle for would-be buyers. "For the market to regain full momentum," Sturtevant said, "we need sustained stability in the global energy market and a clearer sign that domestic inflation is back on a downward trajectory." 

Sellers want predictability: It's not just buyers who are grappling with uncertainty. Volatility is also affecting potential sellers, according to Kyle Bass, production business manager at Refi.com. Stability is a key part of the rate equation: "When rates are moving quickly in either direction, many homeowners tend to pause. When things begin to settle, even at slightly higher levels, it creates space for more thoughtful decision-making," Bass said.

Still, some buyers are responding to lower rates: Mortgage applications saw a healthy bump last week, with total applications up 7.9% week-over-week and purchase applications increasing 10%, according to the Mortgage Bankers Association. Purchase applications were up 14% compared to this time last year. 

"Despite the geopolitical uncertainty, housing demand is being supported by a still resilient job market, and homebuyers are experiencing a buyer's market in most of the country given the higher levels of inventory relative to last year," said Mike Fratantoni, MBA's SVP and chief economist.

But will those deals actually close? More purchase applications doesn't always mean more completed sales. Redfin's latest report on home-sale agreements found that 13.4% of homes under contract were canceled in March, up from 12.5% a year ago. 

The last time March contracts were canceled at that rate was 2023. Between 2017 and 2022, cancellations were typically in the 10-11.5% range, apart from March 2020, when pandemic shutdowns led to a spike in cancellations.   

"House hunters are getting cold feet as costs stay high and economic uncertainty is in the air," the report suggested.