Homebuyers hit pause as mortgage rates climb
Pending home sales have seen their largest drop in four months, plunging 8% amid climbing mortgage rates and severe weather conditions, according to the latest report by Redfin.
The situation took a turn for the worse on February 2 when daily average mortgage rates saw their sharpest increase in over a year. This rise came on the heels of a surprisingly strong January jobs report and signals from the Federal Reserve that interest rate cuts are not anticipated in the near future. As a result, mortgage rates are expected to remain high, further aggravated by climbing home prices that are pushing the typical monthly mortgage payment perilously close to its all-time high recorded in October, thus sidelining a significant number of potential homebuyers.
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Not all is gloomy in the housing market. Redfin’s Homebuyer Demand Index has been on an upward trend since mid-January. The number of home tours has also seen a 16% increase since the start of the year, outperforming the growth observed last year during the same period. In addition, there’s been a 7% year-over-year increase in new listings, indicating that some sellers are still willing to test the waters.
“We’re seeing a bit of recovery with house hunters touring homes, but even demand at the earliest stages isn’t up as much as we would expect at this time of year. That’s because mortgage rates are climbing again and winter weather has been harsher than usual in much of the country, keeping some house hunters at home,” Redfin’s economic research lead Chen Zhao said.
Meanwhile, Redfin Premier agent Luis Rojas called the current housing market touch and go.
“High mortgage rates brought the local market to a near-standstill from August through November, activity picked up when rates dropped a bit in mid-December, and now it’s slowing down again as rates rise,” Rojas said, reminding first-time buyers that “the mortgage rates they see in the news aren’t the be-all and end-all [as] some local lenders are willing to give rates in the 5% range for new construction projects because any business is better than no business.”
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