This spring’s housing market was anything but typical. Though it outperformed last year’s dismal season, it still carried a note of melancholy.
As the season wraps up, mortgage applications, pending home sales, existing home sales, and listings all reflect this subdued sentiment.
Buying and selling homes hasn’t been the same since the pandemic. With mortgage rates soaring, many homeowners hesitate to sell.
Those looking to buy face sticker shock as starter home prices have nearly doubled, making home ownership costlier than ever.
In May, mortgage applications for home purchases dipped by 3.3% from April, following a 2.3% decline the previous month, according to Capital Economics.
This second consecutive monthly drop erased the gains seen in March. May’s figures were only 6.5% higher than last October, when mortgage applications hit a 28-year low amidst rates peaking above 8%. Now, they’re hovering around 7%, as per Freddie Mac’s weekly reading.
Thomas Ryan, an economist at Capital Economics, noted, “Despite mortgage rates easing to 7.07% last month from 7.17%, demand and sales activity won’t rebound until rates fall significantly below 7%.”
He suggested that June might follow May’s trend. “We expect meaningful recovery only later in the year.”
Realtor.com’s monthly housing analysis revealed an increase in homes for sale this May compared to last year, but the numbers still lag behind 2017-2019 levels. April and March followed a similar pattern.
Pending home sales plunged 7.7% in April from March, and 7.4% year over year. Contract signings dropped across all regions. Existing home sales fell 1.9% in April month-over-month and year-over-year.
In March, they declined by 4.3% and 3.7%, respectively. Meanwhile, home prices continued their upward march, hitting the ninth all-time high in March over the past year.
Combining May’s weak mortgage application data with April’s dismal pending home sales suggests existing home sales could drop below an annualized rate of 4 million—well under the decade-long average of about 5.2 million, according to Ryan.
His team predicts no significant recovery until late next year, and even then, it will likely be tepid.
For the housing market to revive, mortgage rates must fall, which hinges on interest rate cuts from the Federal Reserve. The consumer price index for May, an inflation measure, will be released Wednesday, ahead of the Federal Open Market Committee meeting.
It appears the Fed will leave rates unchanged, making a substantial drop in mortgage rates unlikely in the near term.
As it stands, the housing market is stuck in a rut, waiting for the winds of change to breathe new life into it.
