A residential street in the United States [Getty Images]
A residential street in the United States [Getty Images]

The US housing market is freezing up again under the weight of elevated mortgage rates. A "double lock" dynamic has taken hold: prospective buyers are closing their wallets in the face of rates approaching 7% and record-high home prices, while existing homeowners are refusing to list their properties rather than give up the low-rate mortgages they locked in years ago.

The National Association of Realtors said Tuesday that its pending home sales index fell 2.3% from the previous month to 71.2 in July — the lowest reading this year and the second lowest since the association began tracking the data in 2001.

The index was also down 2.2% from a year earlier. Analysts polled by Bloomberg had expected the index to hold roughly flat from the prior month, but actual housing sentiment deteriorated far more sharply. Reuters characterized the July decline in contract signings as a sign of weakness in a US housing market weighed down by high interest rates and economic uncertainty.

Lawrence Yun, NAR's chief economist, said mortgage rates reaching their highest level of the year in midsummer were dragging down contract signings. "Home prices are at record highs, so homes are sitting on the market longer and fewer buyers are offering above the asking price than last year," he said.

The biggest drag on the US housing market remains mortgage rates that refuse to come down. The 30-year fixed mortgage rate has recently been moving in the upper 6% range, holding around 6.7% into August — the highest level in more than a year.

High rates are hobbling sellers as well as buyers. Homeowners who secured long-term mortgages at 3 to 4 percent during the low-rate era would have to take out a new loan in the upper 6% range if they sold and moved to a new home. The so-called lock-in effect — where owners stay put rather than surrender their cheap financing — is constraining housing supply.

Buyers, meanwhile, face a double burden of record home prices and steep borrowing costs. With monthly payments pushed higher by elevated rates, affordability has deteriorated sharply. Some analysts have raised the possibility that mortgage rates could climb further toward 7%, which would delay any recovery in the housing market.

New home construction is also slowing. The Commerce Department said single-family housing starts fell 9.9% from the prior month in July to a seasonally adjusted annual rate of 808,000 units — the lowest since November 2022, roughly three and a half years ago, and down 15.7% from a year earlier.

With high interest rates and home prices simultaneously pushing both buyers and sellers to the sidelines, a prolonged slump in US housing transactions looks increasingly likely. Analysts say a meaningful recovery in market activity will be difficult unless mortgage rates fall significantly.


sjy@heraldcorp.com