According to Redfin, housing payments hit a new high this week as mortgage rates jumped due to progress on a possible debt-ceiling deal.
Daily average rates hit 7.12% on May 25, reaching their highest level since November 2022. The typical U.S. homebuyer’s monthly mortgage payment hit a record high $2,614 at a 6.57% mortgage rate, the current weekly average.
The rate increase dampened homebuying demand. Pending home sales dropped 17.4% nationwide from a year earlier during the four weeks ending May 21, the second-biggest dip since January (the biggest was a 17.5% decline in early April). Mortgage-purchase applications declined too, dropping 4% from the week before.
Potential sellers continued backing off, with new listings of homes for sale dropping 24%, one of the biggest declines since May 2020. That’s because homeowners continue to hang onto their homes, locked in by comparatively low rates. Even though demand is down, it’s still outpacing supply as the new-listing drought has caused the total number of homes for sale to post an annual decline (-0.9% YoY) for the first time in nearly a year.
Despite rates jumping past 7% and a lack of new listings, many early-stage homebuyers remain committed. Redfin’s Homebuyer Demand Index, which measures requests for tours and other services from Redfin agents, increased from a week earlier and is essentially flat (-1%) from a year earlier. Some of these house hunters are likely to continue moving forward, while others may wait for rates to decline before securing loans. A burst of pent-up demand may occur when and if rates dip again.
“Mortgage rates have increased over the past two weeks because it looks more likely that the U.S. government will avoid hitting the debt ceiling,” says Chen Zhao, Redfin economics research lead. “That may seem counterintuitive, but optimism is driving rates up because an economic crisis would lead to the Fed lowering rates as they try to prevent a recession.
“Financial markets felt the risk of default was unusually high for the last month or so, which caused rates to stay lower than they otherwise would have been,” she notes. “Now that Democrats and Republicans have come to the negotiating table and are making some progress toward a deal, rates are going up.”