US pending home sales increase further; higher mortgage rates remain a constraint

[WASHINGTON] Contracts to purchase previously owned US homes increased for a third straight month in April, likely as a retreat in mortgage rates pulled buyers back into the market.

The pending home sales index rose 1.4 per cent last month to 74.8, the National Association of Realtors (NAR) said on Tuesday (May 19).

Economists polled by Reuters had forecast contracts, which become sales after a month or two, increasing 1 per cent. Contracts surged 6.6 per cent in the Northeast and advanced 3.0 per cent in the Midwest region. They climbed 0.4 per cent in the West, but fell 0.7 per cent in the South.

The popular 30-year fixed mortgage rate jumped to an average of 6.46 per cent at the beginning of April, data from mortgage finance agency Freddie Mac showed, as the US-Israel war with Iran boosted oil prices and US Treasury yields.

The rate, which tracks Treasury yields, had dropped to 5.98 per cent on the eve of the conflict amid expanded purchases of mortgage-backed securities by Freddie Mac and Fannie Mae. It averaged 6.3 per cent at the end of April.

“Buyers are coming out with cautious optimism despite increasing economic uncertainty and a slight rise in mortgage rates,” said Lawrence Yun, NAR’s chief economist. “Demand will easily be even higher once mortgage rates retreat to the levels they were at earlier this year.”

SEE ALSO

US mortgage rates little changed despite surging inflation

Rising housing costs keep US first-time buyers on the sidelines

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The housing market has remained on the back foot this year, weighed down by higher borrowing costs, tariffs on imported goods, including lumber, as well as still-tight inventory and elevated home prices.

Residential investment, which includes home building and broker commissions, has contracted for five straight quarters.

A survey on Monday showed homebuilder sentiment remaining subdued in May, with mortgage rates and economic uncertainty because of the Middle East conflict, high land, labour and construction costs cited as constraints. REUTERS