Mortgage rates back up again and homebuyers call it quits

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Mortgage rates are back up again this week after three straight weeks of declines.

The rate on the 30-year fixed rate mortgage hit 5.23%, up from 5.09% last week, according to Freddie Mac, tracking the 10-year Treasury yield, which spiked near 3% as investors scrambled ahead of a key inflation reading on Friday.

Persistently high rates coupled with a continued shortage in homes for sale are squeezing homebuyers, with many of them calling it quits on purchasing a house.

“We’ve seen a lot more cancellations recently than we’ve had in years prior,” Lizy Hoeffer, chief experience officer and mortgage broker at CrossCountry Mortgage in Arizona, told Yahoo Money. “People are hesitant to make a decision to purchase, but for the most part we still have a lot of activity in the buyer’s market.”

Home buyer confidence is eroding

The brief pullback in rates in recent weeks did little to sway price-rattled buyers. Now as rates rise again, the signs of a quickly cooling market continue to add up.

The volume of purchase mortgage applications declined 18% from one week prior on a seasonally unadjusted basis, and was 21% lower than the same week a year ago, according to the latest Mortgage Bankers Association survey for the week ending June 3.

Nationwide, 60.7% of home offers by Redfin agents registered some competition in April, the lowest rate since March 2021 and the second consecutive monthly decline in bidding war activity, according to Redfin data.

Prospective buyers visit an open house for sale in Alexandria, Virginia (Credit: Jonathan Ernst, REUTERS)

And a record low share of Americans (17%) reported it’s a good time to buy a home in May, according to Fannie Mae’s index measuring home purchase sentiment, while 79% of respondents said it’s a bad time to buy.

It’s not surprising given the numbers.

Buyers of a median-priced home are looking at a monthly mortgage payment that is 53% higher than a year ago, adding an additional $670 to their monthly expenses, according to Realtor.com. A year ago at this time, the median-priced home was $380,000 – it’s now $447,000.

People wait to visit a house for sale in Garden City, Nassau County, New York, the United States. (Credit: Wang Ying/Xinhua, Getty Images)

“I’ve been in the lending industry for 25 years and when you have periods of time where people walk away from transactions, that’s usually a very bad sign,” Jeffrey Ruben, mortgage broker and president of WSFS Mortgage, told Yahoo Money. “Knocking on wood that we still haven’t seen any cancellations, but in the current market – you may have some people walk away.”

Even repeat buyers who are armed with record equity to tap are discouraged by the lack of homes for sale and rising borrowing costs. Their reluctance to move up is also adding to the inventory woes.

“You have folks that really enjoyed the increase in home value these past years, which makes that opportunity to tap that equity tempting and viable to trade-up,” Ruben said. “But you also have some of those same potential buyers say, ‘hey, I have a great rate on my first mortgage. I don’t really want to redo that.’”