Market dips after rates jumped in the wake of Liberation Day tariffs
A surge in interest rates, which followed the Trump administration’s Liberation Day tariff announcement, is cited as one reason for a 6.3% decline in pending home sales in April. Contract signing was also down in all regions except for the Midwest.
The National Association of Realtors (NAR) released its April report on Thursday, showing a 6.3% reduction in the association’s Pending Home Sales Index (PHSI) to 71.3. Year over year, pending sales fell by 2.5%. A rating of 100 represented the level of contract activity in 2001.
Lawrence Yun, NAR chief economist, said the bump in rates caused the pending sales slowdown.
“At this critical stage of the housing market, it is all about mortgage rates,” Yun said. “Despite an increase in housing inventory, we are not seeing higher home sales. Lower mortgage rates are essential to bring home buyers back into the housing market.”
Pending sales fell in all four regions of the country. The Northeast fell 0.6% from last month and 3.0% from April 2024. The Midwest fell 5.0% in April but increased 2.2% from April 2024.
The South declined 7.7% from March and 3.0% from last April. The West fell 8.9% in April and 6.5% from April 2024.
Despite the decline in pending sales, Yun said the best deals are still found in the Midwest.
“Home buyers have a better chance to purchase homes in affordable regions such as the Midwest, where the typical home price is $313,000 – 25% below the national median home price,” added Yun. “Moreover, with housing inventory levels reaching five-year highs, home buyers in nearly every region of the country are in a better position to negotiate more favorable terms.”
More sellers than buyers in the market
As Yun mentioned, housing inventory levels continue to increase, which could mean a price break for buyers soon.
This was backed up by a Redfin report on Thursday which showed that the housing market has nearly 500,000 more sellers than buyers, which is the most on record.
Redfin reported an estimated 1.9 million home sellers in the market, compared to an estimated 1.5 million homebuyers. The report notes that this is the largest number of home sellers since March 2020 and the fewest number of buyers dating back to 2013, with the exception of the first month of the pandemic in April 2020.
Unfortunately for buyers, the market still presents challenges that keep them from closing deals. Redfin cites the high cost of buying a home and economic uncertainty as headwinds. Sellers are coming to the market as the rate lock-in effect is loosening.
Redfin senior economist Asad Kahn believes there could be deals for buyers as homes sit on the market for longer periods of time.
“The balance of power in the US housing market has shifted toward buyers, but a lot of sellers have yet to see or accept the writing on the wall. Many are still holding out hope that their home is the exception and will fetch top dollar,” Khan said. “But as sellers see their homes sit longer on the market and notice fewer buyers coming through on tour, more of them will realize that the market has adjusted and reset their expectations accordingly.”
Lower applications could make for tough May
While the market saw an increase in mortgage applications in late April and early May, the trend reversed as the month continued.
The Mortgage Bankers Association (MBA) reported mortgage application declines on Wednesday for the second straight week.
In the week of May 23, applications fell 1.2% from the previous week. Refinances were down as rates spiked to near 7% on average. Purchases did increase slightly, thanks to the surge in housing inventory outweighing the high interest rates.
Moody's US credit downgrade and proposed tax cuts could mean higher borrowing costs, says Odeta Kushi, Deputy Chief Economist at First American. The mortgage market faces challenges from economic turmoil. https://t.co/OdKbGhPQbw
— Mortgage Professional America Magazine (@MPAMagazineUS) May 27, 2025
Bob Broeksmit, MBA president and CEO, noted the encouraging news in the purchase market despite the application decline.
“Mortgage rates increased for the third straight week, pushed higher by continuing volatility in the financial markets,” Broeksmit said. “These higher mortgage rates dampened borrower demand, with both refinance and purchase applications posting declines last week. Despite the weaker activity, the purchase market is on more solid footing than it was a year ago, with applications up 18 percent.”
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