Rising mortgage interest rates are beginning to impact the market as June saw nationwide pending home sales decline after reaching the highest level in over six years.
Pending home sales are forward-looking indicators of future home sales activity, providing information on the future direction of the market. The National Association of REALTORS® reports the Pending Home Sales Index (PHSI) moved down 0.4 percent to 110.9 in June from a revised 111.3 in May. It is still 10.9 percent higher than June of last year, when it was 100.
Pending home sales have been above year-ago levels for the past 26 months. The pace in May was the highest since December 2006, when it reached 112.8, according to NAR.
NAR chief economist Lawrence Yun said higher home prices and interest rates are beginning to impact affordability, especially in high-cost regions. "Mortgage interest rates began to rise in May, taking some of the momentum out of contract activity in June," he said. "The persistent lack of inventory also is contributing to lower contract signings."
Yun explained that there are some home buyers who sign contracts with strong lender commitment letters, but have floating mortgage interest rates. "Those rates can be locked as late as 10 to 14 days before closing, so some homebuyers may change their minds if the rate rises too much, which apparently happened with some sales scheduled to close in June," said Yun.
Mortgage rates increased markedly during June, with the 30-year fixed-mortgage interest rate averaging 4.07 percent, up from 3.54 percent in May 2013, according to Freddie Mac. According to the California Association of REALTORS®, June marked the first time since October 2011 that the fixed-mortgage interest rate averaged above 4 percent. Adjustable-mortgage interest rates also increased but only slightly, averaging 2.60 percent in June, up from 2.55 percent in May, but down from 2.76 percent in June 2012.
C.A.R. indicated the state's pending home sales also slipped in June. The state Pending Home Sales Index fell 6.4 percent to 114.3, down from 122.1 in May. Pending sales were down 5.5 percent from the 120.9 index recorded in June 2012.
"Prices have been escalating so fast in some areas, and with interest rates now edging upward, some buyers would like to tread slowly before making a move. Many do not want to be in the position that some homeowners found themselves in a few years ago," said Carolyn Miller, president of the Silicon Valley Association of REALTORS®.
Miller said inventory of homes is slowly growing, but the market still favors sellers. "Sellers who have been waiting in the wings are realizing it's time to move, especially those who are realizing positive equity in their homes due to the rising home prices," said Miller.
The Silicon Valley Association of REALTORS® (SILVAR) is a professional trade organization representing over 4,000 REALTORS® and Affiliate members engaged in the real estate business on the Peninsula and in the South Bay. SILVAR promotes the highest ethical standards of real estate practice, serves as an advocate for homeownership and homeowners, and represents the interests of property owners in Silicon Valley.
The term "REALTOR®" is a registered collective membership mark which identifies a real estate professional who is a member of the National Association of REALTORS® and who subscribes to its strict Code of Ethics.
Variations of this article have appeared in local area newspapers.
For further information, please email or call the SILVAR office at (408) 200-0100.