Housing payments hit a new record high in late-May as rates jumped due to reported progress on a debt-ceiling deal, according to a new report from Redfin.
Daily average rates hit 7.12 percent on May 25, reaching their highest level since November. The typical U.S. homebuyer’s monthly mortgage payment hit a record-high $2,614 at a 6.57 percent mortgage rate, the current weekly average.
The rate increases dampened homebuying demand. Pending home sales dropped 17.4 percent nationwide from a year earlier during the four weeks ending May 21, the second-biggest dip since January (the biggest was a 17.5 percent decline in early April). Mortgage-purchase applications declined too, dropping 4 percent from the week before, Redfin stated.
Potential sellers continued backing off, with new listings of homes for sale dropping 24 percent, one of the biggest declines since May 2020. That’s because homeowners continue to hang onto their homes, locked in by comparatively low rates. Even though demand is down, it’s still outpacing supply as the new-listing drought has caused the total number of homes for sale to post an annual decline (-0.9 percent year-over-year) for the first time in nearly a year.
Despite rates jumping past 7 percent and a lack of new listings, many early-stage homebuyers remain committed. Redfin’s Homebuyer Demand Index, which measures requests for tours and other services from Redfin agents, increased from a week earlier and is essentially flat (-1 percent) from a year earlier. Some of these house hunters are likely to continue moving forward, while others may wait for rates to decline before securing loans. There may be a burst of pent-up demand when and if rates dip again, according to Redfin.
“People may be wondering why rates are surging as we come up against a potential debt crisis. Right now, the way investors are reacting is the driving force. Mortgage rates have increased over the past two weeks because it looks more likely that the U.S. government will avoid hitting the debt ceiling,” Redfin Economics Research Lead Chen Zhao said in a release. “That may seem counterintuitive, but optimism is driving rates up because an economic crisis would lead to the Fed lowering rates as they try to prevent a recession. Financial markets felt the risk of default was unusually high for the last month or so, which caused rates to stay lower than they otherwise would have been. Now that Democrats and Republicans have come to the negotiating table and are making some progress toward a deal, rates are going up.”