Mortgage Rate Declines Could Boost Home Sales Following Months of Low Activity

Over the past couple of months, home sales fell as both asking prices and mortgage rates remained stubbornly elevated. The median U.S. monthly housing payment reached an all-time high of $2,894 during the four weeks ending May 5, a 14% increase from a year earlier. At the same time, home prices also rose (by 4.5%) to reach a new peak.

But a dip in mortgage rates in May indicates an increase in home sales could be on the horizon, according to a report from housing market platform Redfin. 

Home sales fell due to high rates and low supply. Pending home sales dropped 3% from a year earlier–the biggest decline in two months. There are also signs that competition for homes is slowing during a time of year when it typically speeds up: 30% of homes sold above asking price, flat from a week earlier and down from 32% a year earlier and  more than 50% two years earlier. And 6.2% of home sellers dropped their asking price, the highest share since November and up from 4.3% a year ago. But there is one signal that demand is starting to pick up: Mortgage-purchase applications increased 2% week over week. 

Recent economic news brought rates down from their peak. Encouraging economic news pushed daily average mortgage rates down from a five-month high of 7.5% on April 30 to about 7.2% at the end of last week and into this week, bringing buyers a modicum of relief. The Fed held interest rates steady and kept open the possibility of a rate cut later this year at their May 1 meeting, and last Friday’s soft jobs report was another step in the right direction. 

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