Inventory Is Up — But High Rates Continue to Drag On the Market
Existing home sales slid in April — and the return of 7% mortgage rates isn’t helping the depressed spring buying season.
Key points:
- Home sales dropped last month as economic uncertainty and high mortgage rates continued weighing on potential buyers.
- Mortgage rates are ticking back up amid growing concerns about the rising U.S. debt and the country’s recent credit downgrade.
- Inventory continues to rise, meaning that those who are ready to buy have more options to pick from.
Economic signals continue pointing to a slow spring for the housing market as elevated mortgage rates keep pent-up demand in limbo.
Though mortgage rates had plateaued in recent weeks following a surge in early April, the 30-year fixed-rate mortgage jumped again to top 7% after Moody’s announced on May 16 that it was downgrading the U.S.’s credit rating.
Sales are down, but prices keep climbing
Existing home sales came in at a seasonally adjusted annual rate of 4 million in April — down 0.5% from March and 2% from a year ago, according to the National Association of Realtors. Last month’s slide followed a 5.9% drop from February to March as the spring season got off to a slow start.
Though existing home prices increased just 1.8% compared to a year ago, the median price hit $414,000 last month, “an all-time high for the month of April and the 22nd consecutive month of year-over-year price increases,” NAR noted in a press release.
Meanwhile, the regional variation of home prices is becoming more pronounced, according to Danielle Hale, chief economist at Realtor.com. Median home prices increased by 6.3% in the Northeast and also bumped up 3.6% in the Midwest year-over-year, but fell slightly in the West (by 0.2%) and in the South (by 0.1%).
While the market has potential buyers, they aren’t convinced that now is a good time to make a home purchase, according to NAR Chief Economist Lawrence Yun.
“Home sales have been at 75% of normal or pre-pandemic activity for the past three years, even with seven million jobs added to the economy. Pent-up housing demand continues to grow, though not realized,” Yun said, adding that a “meaningful decline in mortgage rates will help release this demand.”
Rates hover around 7%
Though mortgage rate volatility calmed in recent weeks, that all changed after the U.S.’s mid-May credit rating downgrade. The 30-year fixed-rate mortgage averaged 6.86% this week, according to Freddie Mac — down slightly from this time last year, when rates averaged 6.94%, but up from last week’s 6.81% average.
Mortgage News Daily, which uses a different set of metrics, pegged the average 30-year fixed-rate mortgage at 7.07% on May 22.
“Concerns about tariffs and the growing U.S. debt burden have raised doubts about whether U.S. Treasurys remain a safe-haven asset,” wrote Jiayi Xu, an economist at Realtor.com. “As a result, yields rose as investors reassessed the risk of holding U.S. debt. Since mortgage rates closely track the 10-year yield, this upward pressure has translated into increased borrowing costs for homebuyers, which means higher mortgage rates.”
This pressure has led to a slowing of mortgage applications, according to the Mortgage Bankers Association. Overall applications dropped 5.1% compared to the week before, with purchase applications down 5%.
“Mortgage rates jumped to their highest level since February last week, with investors concerned about rising inflation and the impact of increasing deficits and debt,” said Mike Fratantoni, MBA’s chief economist. The silver lining? Purchase applications “are up 13 percent from one year ago,” he added.
Higher inventory, lower prices?
Inventory continues to grow, according to Redfin’s rolling four-week report. New listings were up 8.4% year-over-year for the four weeks ending May 18 — the highest level in almost three years. The total number of homes for sale also hit a nearly five-year high with a 14.3% year-over-year increase.
With inventory climbing and sales remaining sluggish, Redfin economists have predicted that overall home prices will be down 1% by the end of 2025, compared to the end of 2024.
However, a dip in prices could help with affordability, particularly if wages continue to rise, Redfin’s report noted. But waiting for that price drop may not help if demand begins increasing as others return to the market.
“We know there’s room to negotiate right now, so that’s the best way to take advantage of the changing market,” said Chen Zhao, Redfin’s head of economics research. “And the sooner you buy, the sooner you start to build equity.”
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