High rates, home prices to blame for ‘tepid housing market’ 

Mortgage rates hit their highest levels since August this week, but a lower-than-expected inflation report and improving affordability could help more buyers enter the market in the second half of the year. 

For now, however, a decline in pending home sales suggests the housing market may not regain much momentum this summer.

Rates reach 10-month high as instability threatens inflation improvements 

The average 30-year mortgage rate ticked up to 6.55% this week, according to Freddie Mac. Mortgage rates started the month at 6.43% but began rising as the Iran war ceasefire — which has now effectively ended — showed signs of breaking down.

Mortgage News Daily (MND), which uses a different set of metrics to calculate rates, put the 30-year daily average at 6.68% today. That's a slight increase from yesterday's reading, but down from the two-month peak of 6.75% MND reported on Monday. 

MND attributed some of the decline to this week's Consumer Price Index, which showed inflation easing to 3.5% in June, below analyst expectations of 3.8%. The lower inflation measure was largely due to falling energy prices, the CPI report noted, but the cost of fuel could start rising again now that the conflict in the Middle East has re-escalated.

"Inflation continues to be a thorn in the side of most American households," Cotality Chief Economist Selma Hepp said in response to the CPI data. "Geopolitical instability in the Strait of Hormuz will continue to keep energy prices volatile, and most dips in gas prices look likely to be temporary at best," Hepp added.

Pending sales fail to maintain late-spring momentum

Signed home purchase contracts fell in June, according to the pending home sales data released today by the National Association of Realtors. 

Pending sales were down 5.4% month-over-month, a significant turnaround after a "late spring buyer rush" pushed contract signings up in May. On an annual basis, pending sales were nearly flat, falling just 0.3%. The monthly declines affected all four U.S. regions, according to the report, but the Northeast and Midwest saw small year-over-year gains. 

"The highest mortgage rates in nearly a year and the record-high national median home price together are contributing to a tepid housing market that is especially difficult for first-time homebuyers," NAR Chief Economist Lawrence Yun said in the release.

Redfin also reported a dip in pending home sales, which it tracks on a rolling four-week basis. In its latest market update, Redfin found that pending sales fell 2.2% for the week ending July 12, representing the first weekly decline in a month. The report also noted that new listings were down 1.2%, falling to the lowest level since January.

Mortgage applications fall, but market backdrop 'modestly improving'

With rates on the rise and buyers apparently hesitant to commit, mortgage purchase applications were also down week-over-week. Overall loan activity fell 2.7% for the week ending July 10, according to the Mortgage Bankers Association, with purchase applications down 7%.

Despite higher mortgage rates and general buyer wariness, the outlook isn't all bad, said Freddie Mac Chief Economist Sam Khater. "Purchase application demand has weakened recently," Khater acknowledged, "but housing affordability is more favorable and housing inventory continues to rise, thus the backdrop for prospective homebuyers is modestly improving."