Homebuyers Stay on the Bench Despite Better Rates, Lower Payments

The severe heat waves may have contributed to a slowdown in homebuyer activity despite lower monthly payments, better rates and increasing inventory.

Typical monthly housing payments dropped to $2,722 during the four weeks ending July 14, a $115 drop from April’s all-time high payment according to a new report from Redfin. In addition, daily average mortgage rates dropped to their lowest level since February, giving buyers about $25,000 in additional purchasing power. For example, a homebuyer on a $3,000 monthly budget can afford a $450,000 home with a 6.8% mortgage, as of mid-July, up from $425,0000 at a 7.5% rate in April.

“Severe heat waves are making people feel pretty much locked in their houses,” said Redfin premier agent Kristin Sanchez. “They don’t want to come out to see homes because it’s miserable outside; open houses haven’t been getting much traffic.”

Even rising supply isn’t motivating homebuyers. New listings are up 6.4% year-over-year and the total number of listings reached its highest level in almost four years, according to Redfin. The report suggested inventory is up as sellers have grown tired of waiting for rates to drop significantly to put their property on the market.

However, buyers appear to be more patient. Pending sales are down 5.6% year-over-year, the biggest decline in eight months, according to Redfin. The firm said its Homebuyer Demand Index, which measures requests for tours and other buying services from Redfin agents, is down 15%. In addition, mortgage purchase applications are down 3% week-over-week on a seasonally adjusted basis.

“Now that it’s looking increasingly likely the Fed will cut interest rates by the end of the year, some house hunters believe mortgage rates will fall more and are waiting for that to happen before they buy,” said Chen Zhao, Redfin’s economic research lead. “But they may be waiting in vain; it’s unlikely mortgage rates will drop much lower in the next few months, as markets are already pricing in the expectation of a rate cut in September, followed by several more at the end of 2024 and into 2025. In fact, now may be the right time for house hunters to get serious about making offers before prices increase even more and they lose some power. Plus, there are more homes to choose from, and many listings are growing stale, giving buyers an opportunity to negotiate.”