In what should be a reassuring display of good timing, mortgage rates fell for the third week in a row — right at the start of homebuying season.
But mortgage rates are still too high for the comfort of many would-be buyers. That seems to be why home sales stumbled in April, and they might not be much better in May.
The average rate on the 30-year fixed-rate mortgage dropped to 6.87% in the week ending May 23, according to rate information provided to NerdWallet by Zillow. It was a decline of 11 basis points from the previous week. (A basis point is one one-hundredth of a percentage point.)
A slump in home sales in April
The 30-year mortgage has fallen almost half a percentage point in three weeks. If you think this decline means real estate agents are gleefully slapping “Sold” stickers on oodles of “For Sale” signs, sorry to disappoint you.
“Purchase activity continues to lag despite this recent decline in rates,” said Joel Kan, deputy chief economist for the Mortgage Bankers Association, in a news release. This slowdown is a continuation of a worrisome trend.
A combination of high mortgage rates, elevated prices and scant inventory weighed on home sales in April. People bought existing homes at an annual pace of 4.14 million dwellings last month, according to the National Association of Realtors. That was a 1.9% decline from March as well as from the previous April.
Buyers are reluctant
The height of the homebuying season is May through August. If this crucial four-month period had walk-on music, Led Zeppelin would set the right mood. But April was more Vivaldi than Zep. April’s soft sales mean sellers might end up disappointed this spring and summer.
“This year, more sellers are back well ahead of the spring shopping season,” said Orphe Divounguy, senior economist for Zillow, in a news release. “However, buyers — faced with a sharp increase in mortgage rates — have been slower to return.”
He was talking about a rise in mortgage rates that happened in March and April, when April’s home buyers locked their interest rates. Here’s a sobering factoid: Even though rates have fallen three weeks in a row, they’re a little higher than where they stood back in March and early April. That’s why May is shaping up to be a disappointing start to the homebuying season.
Financial markets are betting that the Federal Reserve will cut short-term interest rates at least once this fall. That would probably send mortgage rates downward, too.
“Lower mortgage rates later this year will provide a breather, though the average potential home buyer continues to maintain a wait-and-see approach,” said Selma Hepp, chief economist for CoreLogic, in a news release.
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Holden Lewis writes for NerdWallet. Email: hlewis@nerdwallet.com. Twitter: @HoldenL.
The article Weekly Mortgage Rates Fall, But Existing Home Sales Sag originally appeared on NerdWallet.
