An index measuring signings of contracts for home sales rose for the second consecutive month in July, but the gains could be short lived. Mortgage rates rose to the highest level in decades in August, intensifying the forces buffeting home buyers.
The National Association of Realtors’ index of pending home sales increased 0.9% in July, rising for the second consecutive month following a springtime slump. Economists had expected a drop, according to FactSet consensus estimates.
“Jobs are being added and, thereby, enlarging the pool of prospective home buyers,” Lawrence Yun, the trade group’s chief economist, said in a statement.
But the data reflect contract signings when mortgage rates measured by
Freddie Mac
were still below 7%. In recent weeks, mortgage rates have risen as high as 7.23%, according to Freddie Mac’s weekly gauge, the highest in decades.
Those higher rates, combined with a low supply of homes for sale and rising prices, may have hurt demand in August. “Rising mortgage rates and limited inventory have temporarily hindered the possibility of buying for many,” Yun said. Real estate brokers say that while buyers are still out there, they are more discerning and less frenzied than earlier in the pandemic.
Higher mortgage rates have defined the housing market over the past year or so as rates’ ascent from pandemic-era lows weighed on both buyers and sellers, resulting in fewer transactions. Sales of previously owned homes this year have remained well below their long-term average. While pending home sales ticked up from the month prior, the measure was 14% lower than year-ago levels.
Indeed, one early indicator of future home sales pulled back in August as rates climbed. A Mortgage Bankers Association index tracking applications for loans to make purchases fell to its lowest level since April 1995 this month, though it gained slightly last week.
The low level of purchase applications will eventually affect sales of previously owned homes, said Joel Kan, the Mortgage Bankers Association’s deputy chief economist, but not all buyers are on the sidelines. “There are buyers out there willing to buy at current rate levels,” Kan said, “because they have to, or they just feel it’s more worth their while [to buy] versus continuing to pay rent.”
Buyers are taking longer to pull the trigger because the cost of financing a home purchase is higher than it used to be and the supply of homes is low, said Tim Morgan, a Re/Max agent based in the southern New Hampshire town of Hollis. “Buyers have become a touch more picky, since it’s become more expensive to buy the same thing,” he said. Competing offers are still coming in, but it is more like two or three instead of seven to 10, Morgan said.
In Miami, higher rates and uncertainty about how they will affect the housing market have slowed what was previously a buying frenzy, said Minette Schwartz, a Florida-based Compass agent. “People are more educated, and they’re taking their time to make sure the property fits,” Schwartz said.
A search for quality in response to higher rates may be pushing buyers toward newly built homes, said the Mortgage Bankers Association’s Kan. “We’ve heard anecdotes that some buyers are saying: ‘Look, if I’m paying this amount for the house, and I’m paying this much in monthly payments because of the mortgage rate, I might be better served going with new construction,” he said.
Write to Shaina Mishkin at [email protected]
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