A recent report from Redfin revealed a downturn in pending home sales, marking the largest decline in the past four months. This decline coincides with a notable surge in daily average mortgage rates, which experienced their most substantial one-day increase in over a year on Feb. 2.
The rise in mortgage rates followed a stronger-than-expected January jobs report and confirmation from the Federal Reserve that interest rate cuts are unlikely in the coming two months. Consequently, experts anticipate mortgage rates to remain elevated near their current levels for the foreseeable future, intensifying the challenges already posed by escalating home prices.
The typical monthly mortgage payment is $2,607 at a 6.63% mortgage rate. That is down roughly $110 from the all-time high set in October 2023 but up roughly $250 from the four weeks ending Dec. 31. High housing costs are pricing out a significant number of would-be homebuyers, exacerbating the impact of rising rates on the market.
Several factors have contributed to the decline in pending sales, including adverse winter weather conditions experienced during the first half of January, which led to delays in numerous homebuying transactions. Additionally, pending sales were on an upward trajectory at this time last year as mortgage rates experienced a temporary drop.
Despite these challenges, there are signs of resilience in the market. Redfin's Homebuyer Demand Index, a seasonally adjusted metric measuring requests for tours and other buying services from Redfin agents, has exhibited a steady rise since mid-January. Moreover, a separate measure of home tours indicates a notable 16% increase since the beginning of the year, outpacing the 10% rise observed at this time last year. Sellers are also seizing the opportunity, with new listings up by 7% year over year.
“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,” said Chen Zhao, Redfin’s economic research lead. “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.”
Offering insights from the ground, Luis Rojas, a Redfin Premier agent in the Viera West, Florida, area, described today's housing market as "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. “I’m advising buyers – especially first-timers – that the mortgage rates they see in the news aren’t the be-all and end-all. Some local lenders are willing to give rates in the 5% range for new construction projects because any business is better than no business.”
