Weekly Mortgage Rates Drop, Existing Home Sales Sag

Mortgage rates fell for the third consecutive week, right at the start of the homebuying season, with the average rate on a 30-year fixed-rate mortgage dropping to 6.87%. Despite this decline, rates are still high for many buyers, leading to a slump in home sales. In April, existing home sales fell 1.9% from March and the previous year, totaling an annual pace of 4.14 million dwellings. High mortgage rates, elevated prices, and low inventory have deterred buyers, contributing to the slowdown.

As the prime homebuying season from May to August begins, the outlook remains uncertain. Sellers are returning to the market, but buyers are cautious due to the earlier rise in mortgage rates. Even with recent rate declines, mortgage rates remain slightly higher than in March and early April, causing hesitation among potential buyers. Financial markets anticipate that the Federal Reserve may cut short-term interest rates this fall, which could lower mortgage rates and potentially revive buyer interest.

March Case-Shiller Index Confirms Stubborn Home Prices

In March, the CoreLogic S&P Case-Shiller Index showed a 6.5% year-over-year home price gain, consistent with February’s growth. This marked the ninth consecutive month of annual growth, despite a leveling off in the growth curve. Notably, the non-seasonally adjusted month-over-month index saw a significant seasonal increase, similar to last spring’s robust rise. Selma Hepp, chief economist at CoreLogic, noted that home prices continue to rise beyond pre-pandemic levels, up 1.3% month-over-month compared to the pre-pandemic average of 0.8%. Despite high borrowing costs, this price resilience has led to affordability challenges and slow sales activity. While some homeowners have sold properties due to increased costs like insurance and property taxes, price stickiness has limited inventory improvements, leaving many buyers waiting for potential rate drops later in the year.

Hepp highlighted that non-mortgage costs have influenced regional price growth, with weaker price growth in areas like Tampa due to affordability issues. In contrast, strong labor markets in cities like Seattle, Boston, and New York are driving demand and price pressure. The latest HPI data indicated the weakest home price growth in New Orleans, Austin, San Antonio, Cape Coral, and North Port, Florida, areas facing increased supply or rising costs and some at higher risk for severe weather events. The 10-city and 20-city composite indices also saw their ninth straight month of year-over-year increases, with 8.2% and 7.4% growth, respectively, reflecting stronger appreciation in major employment centers and cooling prices in cities that experienced high migration during the pandemic.

Mortgage Applications Fall in Latest MBA Survey

Mortgage applications dropped 5.7% from the previous week, according to the Mortgage Bankers Association’s survey for the week ending May 24, 2024. The Market Composite Index, measuring mortgage loan application volume, fell 5.7% on a seasonally adjusted basis and 6.3% on an unadjusted basis. The Refinance Index decreased by 14% from the previous week, although it was 12% higher than last year. The seasonally adjusted Purchase Index saw a 1% decline from the prior week, while the unadjusted Purchase Index dropped by 3% and was 10% lower than last year.

Mortgage rates increased for the first time in four weeks, with the 30-year fixed rate rising to 7.05%, contributing to the decline in applications. Both purchase and refinance applications fell, pushing overall activity to its lowest level since early March. Borrowers remain sensitive to rate changes, affecting the refinance market and keeping purchase applications below last year’s levels. However, it’s not just the rates that are posing a challenge. Limited existing home inventory continues to be a major hurdle for buyers, further impacting the market. The average interest rates for various mortgage types, including jumbo loans, FHA-backed loans, and 15-year fixed-rate mortgages, all saw increases during this period.