An unexpected drop in mortgage rates has prompted homebuyers to stop waiting and start buying homes. However, affordability and recession concerns are holding back buyers.
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An unexpected drop in mortgage rates brought homebuyers out of the shadows in July, according to the latest market report from Seattle brokerage Redfin.
On August 5, the 30-year mortgage rate dropped to a daily average of 6.34%, the lowest level since April 2023. Slowing interest rates added $30,000 to homebuyers’ purchasing power last month alone, raising the typical buyer’s budget from $437,000 to $466,000.
Thankfully, the decline in mortgage rates has coincided with a slowdown in median sales price growth.
The median sales price for the four weeks ending August 4 was $389,750, down 1.51%, or $6,000, from the all-time high of $395,750 in early July. While the 1.51% change represents a “typical seasonal decline,” it also represents the smallest annual increase in median sales prices since December (+3.2%).
Slowing mortgage rates and house prices are encouraging homebuyers to start weighing their options, as evidenced by several key travel indicators. The Redfin Home Buyer Demand Index, which tracks demand for travel and other home-buying services from Redfin agents, fell 13% year over year, the smallest decline in three months. At the same time, ShowingTime’s tour requests increased by 13% from January, and Google searches for “homes for sale” increased by 4% from June.
However, the increased interest has yet to translate into sales. Pending sales, a forward-looking indicator based on contract signings, posted their biggest annual decline in nine months, at -6.7%. The drop in mortgage rates at the end of July did not lead to an increase in offers from Redfin agents, the report said.
Shoshanna Godwin
While offers and pending sales have stalled, Seattle-based Redfin Premier agent Shoshana Godwin said she’s seeing more homebuyers moving forward with their plans out of concern that interest rates will drop “too low” and trigger a 2020-style recession of fanaticism.
“Many of the buyers I work with are excited because they have been haphazardly house hunting for a year and were waiting for home prices to come down before making an offer,” she said in a written statement. “Many buyers now want to get in before home prices go up. Enter the market also lower and trigger more competition.
She said that unlike in 2020, when homebuyers snapped up every available property, today’s homebuyers are very picky – making offers only on properties that are move-in ready.
“One of my properties went on the market last week and has had over 100 buyers approved and nine offers received,” she said. “Buyers are getting lower interest rates than they were a few months ago, but costs are still high and buyers are picky. If they have high monthly payments, they want a move-in ready home so they can You don’t have to pay for upgrades.
It looks like homebuyers will have more choices in the coming months, with new listings rising 5.9% annually in the past four weeks to August 4. With more than 30 units sold at the current sales rate, inventory has increased to a 3.4-month supply.
Of those listings, 7.2% experienced price declines, further demonstrating the shift from a seller’s market to a balanced market.
Email Marianne McPherson
