Signed contracts to buy previously owned homes in the US plunged more than expected in June as rising mortgage rates and higher home prices continued to push entry-level homebuyers out of the market.
The National Association of Realtors said on Wednesday that its pending home sales index tumbled 20% in June compared with the same month one year ago. On a monthly basis, pending home sales dropped 8.6% – far more than the 1.5% decline projected by Refinitiv economists.
The interest rate–Sensitive housing market has started to cool noticeably in recent months as the Federal Reserve moves to tighten policy at the fastest pace in three decades in order to cool consumer demand and bring scorching-hot inflation under control.
Policymakers already approved a 75-basis point rate increase in June and are expected to approve another of that magnitude on Wednesday at the conclusion of their two-day, policy-setting meeting. That would push the benchmark federal pandemic funds rate to a range between 2.25% and 2.50%, the highest since the COVID-19 began two years ago.
Following the rate hikes, the average rate on a 30-year fixed mortgage – the most popular among new homeowners – climbed to nearly 6% in June, though they’ve since moderated. The average rate for a 30-year fixed rate mortgage is currently hovering around 5.54%, according to recent data from mortgage lender Freddie Mac.
That is significantly higher than just one year ago, when rates stood at 2.88%.
Combined with high home prices, the rapid rise in borrowing costs has pushed many entry-level homebuyers out of the market.
A new report from Redfin last week showed that the share of sale agreements on existing homes canceled in June was just under 15% of all homes that went under contract – the highest since early 2020 – at the height of the COVID-19 pandemic.