Housing market slows further in June as sales, mortgage demand tumble

The U.S. housing market continued to soften in June, with existing-home sales falling and mortgage demand hitting a 22-year low, as rising interest rates and recession fears hold off would-be buyers.
Existing-home sales dropped for the fifth straight month in June, according to data released Wednesday by the National Association of Realtors.
Total sales on single-family homes, townhouses, condominiums and co-ops are down 5.4% from May but have tumbled 14.2% compared with the same month last year.
The reports add to signs the once-hot housing market is in the midst of a slowdown and offer hints of what the next phase might look like as the Federal Reserve pushes aggressively to tamp down soaring inflation.
While central bankers are specifically raising interest rates to cool an overheated economy, such tinkering runs the risk of tipping the nation into recession and icing consumers – who as a result have far less buying power – out of the housing market.
“Falling housing affordability continues to take a toll on potential home buyers,” said Lawrence Yun, NAR’s chief economist. “Both mortgage rates and home prices have risen too sharply in a short span of time.”
Mortgage demand fell more than 6% last week, hitting the lowest level since 2000, according to data published by Mortgage Bankers Association.
“Purchase activity declined for both conventional and government loans, as the weakening economic outlook, high inflation, and persistent affordability challenges are impacting buyer demand,” Joel Kan, MBA’s associate vice president of economic and industry forecasting, said in a statement Wednesday.
“The decline in recent purchase applications aligns with slower home building activity due to reduced buyer traffic and ongoing building material shortages and higher costs.”
Mortgage rates have climbed markedly since March, when the Federal Reserve began its series of rate hikes, which are expected to continue throughout the year.
Higher rates lead to higher borrowing costs, shrinking the scope of what home buyers can afford.
The average rate for a 30-year fixed rate mortgage is 5.5%, according to Freddie Mac, up from 2.6% a year ago.
It also coincides with a flattened stock market and higher prices for just about everything, making saving for a down payment even more elusive.
The resulting squeeze on affordability is locking buyers out and leading to fewer deals.
In theory, sellers should eventually adjust to the new economic landscape, curtailing their asking prices to meet buyers whose ability to stretch their budgets has been diminished by higher rates.
But such shifts can take time.
And sellers may be reluctant to lower their expectations after watching their neighbors extract top-dollar prices from desperate buyers in astonishing bidding wars that defined the pandemic housing market of 2021.
“If consumer price inflation continues to rise, then mortgage rates will move higher,” Yun said.
“Rates will stabilize only when signs of peak inflation appear. If inflation is contained, then mortgage rates may even decline somewhat.”