Home tours, refis on the rise, but purchases remain tepid
Mortgage rates were relatively flat this week, remaining just under 6.5%, but buyers appear to be biding their time and waiting to see if rates fall further.
Key points:
- While mortgage application activity increased following last week’s big rate drop, much of it was in refinancing rather than home purchases.
- Touring is up, a sign that interest is out there if mortgage rates drop further.
- Several major metro areas in the Sunbelt, particularly in Florida, are now in buyers market territory.
Mortgage rates are settling in at a new lower level, but as far as buyers are concerned, it's still a waiting game.
The 30-year fixed-rate mortgage rate changed little this week, averaging 6.49% compared to 6.47% a week ago. The 15-year fixed-rate averaged 5.66%, according to Freddie Mac's survey.
Last week's substantial decline did appear to spur an uptick in mortgage application activity, but mostly in refinancing, according to the Mortgage Bankers Association.
Unadjusted purchase mortgage applications were up 2% compared to last week, but remain 8% lower than a year ago. The refinance index rose 35% from the previous week and is 118% higher than this time last year, when mortgage rates were around 7%.
Buyers are just window shopping, for now
The lower mortgage rates have more people looking at homes — but not buying yet. Redfin's latest weekly report found that touring is up 10% compared to the beginning of the year, but the company's demand index is still down 10% year-over-year.
"I was hoping more buyers would emerge when mortgage rates started declining. And while house hunting has picked up a bit, the increase isn't all that significant," said Brynn Rea, a Redfin Premier agent in Spokane, Washington.
Rea said a lot of buyers are waiting to see if mortgage rates will fall more, if and when the Federal Reserve starts cutting interest rates, which could start in September.
The likelihood of a rate cut next month has increased with this week's inflation data showing a downward trend, though the housing sector remained high at more than 5%.
"Despite overall inflation trending in a positive direction, shelter inflation remains stubbornly high," said Hannah Jones, economics research analyst at Realtor.com. "Homebuyers and renters continued to face challenges in July as rents, home prices, and mortgage rates showed little downward progress," Jones added.
Retail sales were also up in July, suggesting that despite a weak jobs report earlier this month, the economy may escape a recession.
Builders less confident
Affordability issues continue to be a barrier for buyers, and that appears to be weighing on builders. The National Association of Home Builders Index, which is a measure of builder confidence, dropped from 41 to July to 39 in August, the lowest reading since December. The latest survey found that one-third of home builders cut home prices to bolster sales in August. The average price reduction was 6%.
According to the NAHB, more builders also turned to incentives, which they reported using 64% of the time — the highest level since April 2019.
Sellers are losing the upper hand
On a national level, the market moved into neutral territory in July, according to Zillow's heat index report. In recent years, that shift has typically occurred in the fall; this is the first time it's happened in July since 2019.
But if interest rates do come down more, that might reignite the market this fall, said Zillow Chief Economist Skylar Olsen.
Among major metro areas, the market favors buyers in several Florida cities like Orlando and Tampa, as well as other Sunbelt areas including Austin, New Orleans and Memphis.