Homebuyers Turn Screws On Builders As Mortgage Rates Are Telegraphed To Fall

Prospective homebuyers are holding off on buying new homes as they bet on mortgage rates falling further, causing slow home sales, according to builders.

And why wouldn’t they wait?

In the week ending Aug. 23, the average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances of $766,550 slipped from 6.5% to 6.44%. This marks the lowest level since April 2023 and the fourth consecutive week of rate declines, according to the Mortgage Bankers Association (MBA).

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“As observed in recent weeks, despite lower rates, purchase applications have not moved much,” said Joel Kan, MBA's vice president and deputy chief economist.

“Prospective homebuyers are staying patient now that rates are moving lower and for-sale inventory has started to increase.”

Mortgage applications saw a modest increase of 0.5% from the previous week, according to the Mortgage Bankers Association's (MBA) Weekly Applications Survey.

Refinancing activity showed a slight decline. The Refinance Index fell by 0.1% from the prior week, though it remains 85% higher than the same week last year, reflecting a robust annual surge in homeowners looking to take advantage of the lower rates.

Adjustable-rate mortgages (ARMs) also saw a decrease in interest rates. The average contract interest rate for 5/1 ARMs fell to 5.98% from 6.25%, indicating some relief for borrowers seeking more flexible loan terms.

Existing home sales increased for the first time in five months as falling mortgage rates have convinced prospective buyers to take out loans. However, sales are still slow as homeowners with mortgage rates around 3% wait for rates to fall even further, according to the National Association of Home Builders (NAHB).

Total existing-home sales rose 1.3% to a seasonally adjusted annual rate of 3.95 million in July. This marks the first increase after four months of declines. On a year-over-year basis, sales were still 2.5% lower than a year ago.

“Despite these changes, sales remained sluggish and low inventory continued to push up median home prices,” the NAHB said on Monday.

Homeowners with lower mortgage rates have opted to stay put, avoiding trading existing mortgages for new ones with higher rates.

This “lock-in” trend is causing home prices to rise and holding back inventory, but this trend should reverse as mortgage rates keep declining, the NAHB said.

“Mortgage rates are expected to continue to decrease gradually, leading to increased demand (and unlocking more of the lock-in inventory) in the coming quarters,” it said.

Price Action: Mortgage companies moved modestly on Wall Street into Thursday’s mid-afternoon trading.

• UWM Holdings Corporation UWMC declined 0.93% to $9.07
• Rocket Companies, Inc. RKT, parent company of Rocket Mortgage, fell 1.79% to $19.21
• Bank of America Corporation BAC went up 0.45% to $40.13

Home builders also moved little on Thursday.

• D.R. Horton Inc. DHI fell 0.09% to $187.41
• Lennar Corporation LEN gained 0.55% to $168.01
• NVR, Inc. NVR ticked up 0.22% to $9,049.14

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Image: Midjourney