Rates up, sales down as ‘housing market tug of war’ continues
Pending sales and purchase applications fell this week as average mortgage rates topped 6.5%, narrowing “the pool of buyers who can make the numbers work.”
After a few weeks of improvement, the spring housing market appears to be slowing down again, with rising mortgage rates proving to be a strong headwind.
Pending home sales and purchase applications both dipped this week as mortgage rates climbed to levels not seen since September — although at that time, rates were falling, not rising.
The conflict in the Middle East continues to play an outsized role in how investors view the economy, and that's showing up in bond rates, which are going up — or down — depending on the news of the day, according to Anthony Smith, senior economist at Realtor.com.
"The spring season still offers real opportunity, though each uptick in rates narrows the pool of buyers who can make the numbers work," Smith said.
30-year rates top 6.5%: Much like the previous four springs, this season's rising mortgage rates are a primary contributor to that diminishing buyer pool. The 30-year rate averaged 6.51% over the past week, according to Freddie Mac, while Mortgage News Daily (which uses a different set of metrics to calculate average rates) reported a significant rise in recent days.
MND's figures showed the 30-year rate settling at 6.65% on May 21, up from 6.52% a week earlier.
Bond yields have also been volatile. The 10- and 30-year yields jumped earlier in the week before pulling back on Wednesday. The 10-year rate, which tends to impact mortgage rates, was below 4% in March but had risen to 4.66% by May 18.
Purchase slowdown: Pending sales dipped 1.1% for the week ending May 17 compared to a week earlier, Redfin's latest data indicates. That decline came in tandem with a 4% drop in the mortgage purchase index, according to the Mortgage Bankers Association.
Lighter competition in the housing market could benefit buyers who aren't facing an affordability cliff, however. "Higher mortgage rates are scaring off some buyers, but that's opening the door for others," said Chen Zhao, Redfin's head of economics research.
"It's already a buyer's market, and this week's jump in mortgage rates may give house hunters with stable incomes another opportunity to negotiate a home's price down and get concessions from sellers," Zhao added.
One step forward, two steps back? The continuing rise in mortgage rates could undo the affordability gains seen earlier this year, according to Lisa Sturtevant, chief economist at Bright MLS.
"While consumers have been re-setting expectations about borrowing costs, with rates moving above 6.5% and no signals that they will ease, the outlook for the late spring housing market is darkening," Sturtevant said.
Bright MLS still expects existing home sales to rise this year, but it's only forecasting a 3.8% increase — well below its more bullish December outlook of 9%. The MLS also reversed course on home price growth. Bright previously forecast a 0.9% increase in median home prices, but now predicts prices will fall by 0.5% in 2026.
Beyond the numbers, Bright's revised forecast emphasizes that the current housing environment remains unpredictable.
"The challenge is right now there are competing factors working against each other, and it is still not clear which side is going to win this housing market tug of war," Sturtevant wrote in a Substack post today.