Are homebuyers ready to look past current market conditions?
Rising pending sales and loan activity suggests some buyers have “shrugged off the current economic and mortgage rate uncertainties and returned to the market.”
Key points:
- Over the past three weeks, pending sales have increased around 9% year-over-year, a sign that May could be a “decent growth month for home sales.”
- Mortgage purchase applications were up week-over-week and are 7% ahead of last year’s pace.
- 30-year mortgage rates appear to be stabilizing, although inflation fears could renew the volatility seen in the wake of the Iran war.
It's too early to call it a trend, but the housing market appears to be showing more signs of life, sparking hope that the spring homebuying season is just getting a late start.
Pending sales uptick spurring 'decent growth'
Weekly data indicates a rise in pending sales and mortgage applications. Pending sales, which are averaging around 9% above last year, have been the most encouraging data point in the past three weeks, according to Mike Simonsen, chief economist at Compass.
May is "shaping up to be finally a decent growth month for home sales," Simonsen said in his weekly YouTube update. "For now, homebuyers are acting a little more frequently this spring."
Redfin data also points to an upswing in pending sales. Its four-week rolling report shows pending sales up 9.6% year-over-year — the highest level since September 2022 on a seasonally adjusted basis. Sellers continue to outnumber buyers by a wide margin, but that gap is starting to shrink, noted Chen Zhao, Redfin's head of economics research, who advised house hunters to "take note."
"Even though mortgage rates have ticked up in recent weeks, serious buyers may consider moving forward sooner rather than later. More buyers in the market equals more competition, which could create bidding wars, push prices up and make it harder to secure that perfect home," Zhao said.
Financing activity on the rise
Overall mortgage applications were up 1.7% for the week ending May 8, according to the Mortgage Bankers Association, driven largely by purchase applications. MBA's unadjusted purchase index rose 4% compared to the previous week and 7% year-over-year.
Purchase activity increased for all loan types "as potential homebuyers shrugged off the current economic and mortgage rate uncertainties and returned to the market," said Joel Kan, MBA's deputy chief economist.
Mortgage rates stable, for now
The uptick in pending sales comes at a time when mortgage rates appear to have stabilized despite concerns about energy prices and inflation stemming from the Iran war. The 30-year fixed-rate mortgage averaged 6.36% this week, according to Freddie Mac, down a tick from 6.37% the week before.
Rates have been trending upward in recent days following the latest report on inflation, however. Mortgage News Daily, which uses a different set of metrics to determine the daily rate, pegged the 30-year at 6.57% on May 13, up from 6.42% at the end of last week.
Rate volatility has calmed down as oil prices have steadied and demand for mortgage-backed securities has increased, according to Joel Berner, senior economist at Realtor.com — and that relative stability may help boost buyer confidence.
"Uncertainty has ruled the market for months, and while buyers certainly wish rates were back in the 5% territory we saw earlier this year, they are still significantly lower than they were last year at this time," Berner said.
Sellers appear to be proceeding with caution: Redfin's report indicates new listings are down 1.6% year-over-year, although overall inventory is up 1.2%.