After an upbeat June when Delaware home sales marked their second straight month of gains, sales in July dipped almost 20%.
Sales totaled 1,048 in July, down 19.5% from 1,302 in June. Compared with last year, sales fell 26.3% from 1,422 in July 2022.
"The decline in sales is due to a lack of inventory combined with the seasonality of the real estate market," said Chrissy Steele, president of the Delaware Association of Realtors.
Sales in July 2022 were also lower than in June.
While interest rates are rising, Steele said the Delaware real estate market is driven by a multitude of factors, not just interest rates.
"Most home buyers now are prioritizing their quality of life over the monthly payment. They know interest rates fluctuate and they plan to refinance when rates drop again," she said. "In fact, many lenders know this and are waiving their fees on a future refinance, which fosters confidence in home buyers."
Delaware’s figures were worse than the national numbers.
Across the U.S., sales in July shrank 2.2% to an annual rate of 4.07 million, compared with 4.16 million in June. Year over year, sales slumped 16.6% from 4.88 million in July 2022, said Lawrence Yun, chief economist at the National Association of Realtors.
“Two factors are driving current sales activity – inventory availability and mortgage rates,” Yun said. “Unfortunately, both have been unfavorable to buyers.”
How are higher interest rates impacting home sales?
Sales are usually closed with mortgage rates locked in one to two months earlier. The average rate on a 30-year, fixed-rate mortgage in May ranged from 6.45% to 7.14%, according to Mortgage News Daily. In June, the rate range was 6.85% to 7.04%.
Compare that with April, when rates were a more favorable 6.14% to 6.75%, or one year ago on June 30, 2022, when the average rate was 5.70%.
An increase in the interest rate from 6% to 7% will add an estimated $177 to a monthly mortgage payment, according to experian.com for a 30-year, fixed-rate mortgage on a $300,000 home with a 10% down payment.
Mortgages are affected by the Federal Reserve, which has been raising interest rates in an effort to lower inflation. After the fed funds rate was near zero during the pandemic, the Federal Reserve has increased rates 11 times since March 2022.
The latest quarter-point hike on July 26 brought the fed funds rate to a range of 5.25% to 5.5%. That’s what banks charge each other for overnight lending, and it affects rates on mortgages, credit cards and loans.
Yun said if mortgage rates retreated, that would bring more buyers and sellers to the market.