Prospective homebuyers are holding back on purchasing new homes, betting on further decreases in mortgage rates, according to builders. This cautious approach has resulted in slower home sales. Why wouldn’t they wait? The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances of $766,550 dropped from 6.5% to 6.44% in the week ending August 23. This marks the lowest rate since April 2023 and the fourth consecutive week of rate declines, according to the Mortgage Bankers Association (MBA).
“As observed in recent weeks, despite lower rates, purchase applications have not moved much,” said Joel Kan, MBA’s vice president and deputy chief economist. “Prospective homebuyers are staying patient now that rates are moving lower and for-sale inventory has started to increase.” While mortgage applications saw a modest 0.5% increase from the previous week, according to the MBA’s Weekly Applications Survey, refinancing activity showed a slight decline. The Refinance Index fell by 0.1% from the prior week, despite being 85% higher than the same week last year, reflecting a robust annual surge in homeowners looking to take advantage of lower rates.
Adjustable-rate mortgages (ARMs) also saw a decrease in interest rates. The average contract interest rate for 5/1 ARMs fell to 5.98% from 6.25%, offering some relief for borrowers seeking more flexible loan terms.
Existing home sales have increased for the first time in five months, with falling mortgage rates persuading some prospective buyers to take out loans. However, sales remain slow as homeowners with mortgage rates around 3% wait for rates to fall even further, according to the National Association of Home Builders (NAHB). Total existing-home sales rose 1.3% to a seasonally adjusted annual rate of 3.95 million in July, marking the first increase after four months of declines. On a year-over-year basis, sales were still 2.5% lower than a year ago.
“Despite these changes, sales remained sluggish and low inventory continued to push up median home prices,” the NAHB said on Monday. Homeowners with lower mortgage rates have opted to stay put, avoiding trading existing mortgages for new ones with higher rates. This “lock-in” trend is causing home prices to rise and holding back inventory, but this trend should reverse as mortgage rates keep declining, the NAHB said. “Mortgage rates are expected to continue to decrease gradually, leading to increased demand (and unlocking more of the lock-in inventory) in the coming quarters,” it said.
The stock market reflects this cautious optimism. Mortgage companies saw modest movement on Wall Street into Thursday’s mid-afternoon trading. UWM Holdings Corporation (UWMC) declined 0.93% to $9.07, Rocket Companies, Inc. (RKT), parent company of Rocket Mortgage, fell 1.79% to $19.21, while Bank of America Corporation (BAC) went up 0.45% to $40.13. Home builders also moved little on Thursday. D.R. Horton Inc. (DHI) fell 0.09% to $187.41, Lennar Corporation (LEN) gained 0.55% to $168.01, and NVR, Inc. (NVR) ticked up 0.22% to $9,049.14.
Overall, the market seems to be waiting for a clear signal that mortgage rates are reaching their bottom before committing to significant changes.
