This morning, the National Association of Realtors (NAR) reported that pending home sales dropped 6.3% in April from a month earlier.
They were also 2.5% lower than levels seen at the same time last year, dampening any hope of 2025 being a comeback year for home sales.
The culprit? High mortgage rates. You can argue they aren’t that high historically, but they remain much higher than a few years ago.
And they increased from levels seen in March, taking the wind out of the housing market’s sails during the critical spring buying session.
As such, existing home sales will likely see soft prints in future releases (though a bump higher might be expected for May based on the lower rates seen in February and March).
It’s All About Mortgage Rates
We can argue until the cows come home, that it’s high home prices not high mortgage rates, but the data continues to make the argument it’s the latter (see chart above from MND)
Even NAR chief economist Lawrence Yun said, “At this critical stage of the housing market, it is all about mortgage rates.”
He added that “lower mortgage rates are essential to bring home buyers back into the housing market.”
I tend to agree with him here (though I don’t always agree with him). At the same time, I’ve acknowledged that home prices are “high” too.
Problem is, home prices are sticky and even if they do ease somewhat, which they probably will, the impact isn’t as beneficial.
For example, a 1% drop in mortgage rates is equal to roughly an 11% drop in home prices. So you really need prices to dump to boost purchasing power.
Alternatively, you get a nice drop in mortgage rates and prospective home buyers can afford a lot more home.
This also explains why home builders lean so heavily on mortgage rate buydowns. They could lower the price, which some do, but lowering the interest rate is much more effective.
So whether home prices are too high or not is moot here. To bring in more buyers, we need lower mortgage rates.
And near-7% rates simply won’t do. Yet if and when rates hover closer to the 6% mark, it seems buyers perk up and dip their toes again.
So we’re not actually that far off here, we just need clarity on the tariffs, trade war, and government spending bill so yields can come down and rates can ease.
Gen-Z and Millennials Are Delaying Home Purchases Because of High Mortgage Rates
Now I present to you some data to back up the idea that it’s mortgage rates, not home prices.
A new May 2025 survey from Realtor.com found that “persistently high mortgage rates continue to limit buyer activity.”
Senior economic research analyst Hannah Jones noted that about one-third of respondents indicated that they’ve delayed a home purchase because of “still-high rates.”
And it’s even more prevalent among key home buying cohorts, including Millennials and Gen-Z generations.
Some 55% of Gen-Z respondents strongly agreed or simply agreed that they’ve delayed a home purchase due to high mortgage rates.
The same was true for 47% of Millennials, which has been the biggest cohort of home buyers for much of the past decade.
This might also explain why Boomers overtook them recently as the largest share of home buyers.
Despite this, they still want to buy a home, with 23% of Millennials saying so this year, compared with only 15% last September.
So perhaps they’re also getting over the fact that mortgage rates are high, and/or becoming more comfortable with the new normal for mortgage rates.
But it does tell you that if and when rates come back down closer to 6%, we could see a big uptick in home purchases.
The one caveat is if rates only return to those levels due to a wobbly economy, that could offset any expected home buyer demand.
After all, you need a job if you want a mortgage, so if rising unemployment is the reason for falling mortgage rates, we might have a problem.
Before creating this site, I worked as an account executive for a wholesale mortgage lender in Los Angeles. My hands-on experience in the early 2000s inspired me to begin writing about mortgages 19 years ago to help prospective (and existing) home buyers better navigate the home loan process. Follow me on X for hot takes.