Home Buyers Remain Reluctant, Even With Lower Rates This Month

Mortgage rates have been holding mostly steady this month, after dropping nearly a half percent from their peak earlier this year, Freddie Mac reports. “Despite these lower rates, buyers continue to pause, as reflected in tumbling new and existing home sales data,” says Sam Khater, Freddie Mac’s chief economist.

The National Association of REALTORS® reported this week that existing-home sales in June nationally fell 5.4% compared to a year earlier. New-home sales also fell, down 7.4% compared to a year ago and the lowest pace since November 2023. Locally in the Chicagoland area, for June, the number of existing-home sales is down -15.1% from a year ago, the medium home sale prices is up 10.1% and new home listings are up 4.4% from a year ago. Realtors in the area report that sellers have shifted their mindset and are now more aggressively negotiating prices downward than before the pandemic. Sellers have noticed that buyers are not flocking in hordes to new listings as before or getting multiple offers. It has become a buyers market. With home inventory rising and home sales down, why are buyers still sitting on the sidelines? 

“Many potential buyers are remaining in a holding pattern due to elevated mortgage rates that averaged near 7% in June,” says Carl Harris, chairman of the National Association of Home Builders. “However, moderating inflation suggests lower interest rates in the months ahead and that should bring more buyers off the sidelines.” According to recent comments by Fed Chairman Jerome Powell, rate cuts are back on the table with the downward inflation trend and might happen sooner than previoulsly thought. Lets see what happens this week as the Fed reports to Congress. Emergency rate cut, anyone??

That could help home buyers handle the higher home prices, with existing-home prices surging to an all-time high in June, reading a median of $426,900 nationally. At this week’s average 30-year fixed mortgage rate of 6.78%, with a 20% down payment, a household would face a monthly mortgage payment on a median-priced existing home of $2,222, says Jessica Lautz, NAR’s deputy chief economist. Housing affordability and still-high inflation remain pressing issues holding many would-be home buyers back.

Indeed, real estate agents in the Mid-Atlantic region report that affordability was the main reason their clients paused their home search over the past six months, with about half citing high prices, not enough homes in their price range, or high mortgage rates.

“With mortgage rates hovering around 7% and home prices continuing to rise, financing is a growing challenge for buyers, and this is beginning to impact a buyer’s ability to make it across the finish line,” says Lisa Sturtevant, Bright MLS’s chief economist. Bright MLS data shows that a rising percentage of sellers—14%, as of June—had a contract fall through due to the buyer’s inability to secure financing.