The housing market’s summer slumber intensifies as rates rise
The highest mortgage rates of the year are hitting at a time when home sales are already starting their seasonal slowdown, further suppressing activity.
Key points:
- The 30-year mortgage rate averaged 6.66% this week, marking a new high for the year.
- Elevated rates are likely behind the weekly decline in mortgage applications and pending sales. Inventory is slightly higher, however, and may climb if rates remain high.
- The Federal Reserve’s July 29 decision to keep short-term rates unchanged hasn’t appeared to impact mortgage rates, but the Iran war is playing a big role.
With many Americans thinking more about vacations than homebuying, the summer real estate market tends to slow down heading into August. Even so, the current housing and economic headwinds are making the market snoozier than usual.
The 30-year fixed-rate mortgage hit another 2026 high this week, averaging 6.66%, according to Freddie Mac's weekly survey. That's up from 6.58% the week before.
The rate is now approaching the level seen this time last year (6.72%), right before the Federal Reserve began cutting short-term interest rates in September.
Rates reacting to economic uncertainty, not the Fed pause
The economic impacts of the Iran war continue to push mortgage rates up, which appears to be deterring mortgage applications and pending sales.
"Peace talks that had shown promise in early July have broken down, and markets are again reacting to the uncertainty, along with the inflationary pressure that comes as the conflict lifts oil prices," said Anthony Smith, senior economist at Realtor.com.
The initial investor reaction to the Federal Reserve's July 29 decision to keep short-term rates unchanged has been muted, however. Mortgage News Daily noted very little change to the 30-year rate the day after the announcement.
While the Personal Consumption Expenditures price index — the Fed's preferred gauge of inflation — dropped 0.1% in June to 3.7%, it is still well above the target level of 2%, and it may rise again in July due to the increase in energy costs.
'When rates rise, inventory rises'
One effect of elevated rates is typically an increase in supply, so for buyers entering the market later this summer and fall, that could mean more homes to choose from.
"When rates rise, inventory rises," Mike Simonsen, chief economist at Compass, said in an email summarizing his weekly housing update. "We are perhaps seeing the early signs of this shift in the supply data," he added, noting that inventory grew 0.5% this week and is slightly higher than a year ago.
"If rates stay elevated or move higher from here, we may see some supply growth in the second half of the year," Simonsen said.
Applications, pending sales fall
Mortgage application activity dropped 6.4% for the week ending July 24 compared to the week before, according to the Mortgage Bankers Association. Much of that slowdown came in the refinance section, while the seasonally adjusted Purchase Index fell 4%.
"Despite housing inventory increasing in certain markets, higher rates have added to ongoing affordability challenges for many homebuyers, which drove the decrease in purchase activity over the week," said Joel Kan, MBA's deputy chief economist.
Pending home sales also fell during the four weeks ending July 26, dropping 1.7% week-over-week to the lowest level in over three months, according to Redfin data. Additionally, touring and search activity was down compared to this time last year, Redfin found.
It's the type of market that "rewards patience over panic," Redfin agent Bonnie Phillips said in the report.
"If you can afford to buy, focus on finding a home you love and negotiating a good deal rather than trying to perfectly time mortgage rates," Phillips advised.