The U.S. housing market continues to navigate turbulent waters as the latest data reveals a decline in homebuyer mortgage demand and an increase in price reductions by sellers. In January, 15.6% of sellers resorted to cutting prices, a noticeable rise compared to 14.7% in the same month last year. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances also saw a slight decrease, settling at 6.97% from 7.02%, indicating a minor relief for prospective buyers.
The supply of homes for sale remains a critical issue, standing 25% below levels observed in January 2019. This shortage significantly impacts the market, as mortgage applications to buy homes have plummeted by 39% compared to pre-pandemic figures from February 2019. Concurrently, home sales have reached a near-30-year low, despite home prices nationally continuing to set record highs.
Demand for homes has remained flat compared to the same period last year, although the supply of homes for sale has increased by 25% over the previous year. This paradox reflects an ongoing struggle within the housing market to balance supply and demand. Mortgage applications to purchase homes saw a 4% decline last week compared to the previous week, reflecting ongoing uncertainty among potential buyers.
The average time it takes to sell a home has extended to 54 days, marking the longest duration since March 2020. Despite these challenges, there is a glimmer of hope as the average contract interest rate for 30-year fixed-rate mortgages saw a decline, hitting its lowest point in six weeks. This reduction aligns with lower Treasury yields following a Federal Open Market Committee meeting and a volatile week in the stock market.
"Mortgage rates moved lower last week, consistent with lower Treasury yields following the FOMC meeting and a volatile week for the stock market. The 30-year fixed rate declined to its lowest level in six weeks," said Joel Kan, MBA's vice president and deputy chief economist.
Mortgage applications to refinance home loans responded positively to the drop in rates, increasing by 12% from the previous week and 17% from the same week last year. However, most borrowers today still hold rates significantly below current offerings. The average loan size for purchase loans has risen since the beginning of the year, reaching $447,300 last week, marking the highest level since October 2024.
"The average loan size for a purchase loan has increased since the start of the year and continued that trend last week with weaker government purchase activity, which reached $447,300, the highest level since October 2024," remarked Joel Kan.