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Over the past couple of months, home sales fell as both asking prices and mortgage rates remained stubbornly elevated. The median U.S. monthly housing payment reached an all-time high of $2,894 during the four weeks ending May 5, a 14% increase from a year earlier. At the same time, home prices also rose (by 4.5%) to reach a new peak.

But a dip in mortgage rates in May indicates an increase in home sales could be on the horizon, according to a report from housing market platform Redfin. 

Home sales fell due to high rates and low supply. Pending home sales dropped 3% from a year earlier–the biggest decline in two months. There are also signs that competition for homes is slowing during a time of year when it typically speeds up: 30% of homes sold above asking price, flat from a week earlier and down from 32% a year earlier and  more than 50% two years earlier. And 6.2% of home sellers dropped their asking price, the highest share since November and up from 4.3% a year ago. But there is one signal that demand is starting to pick up: Mortgage-purchase applications increased 2% week over week. 

Recent economic news brought rates down from their peak. Encouraging economic news pushed daily average mortgage rates down from a five-month high of 7.5% on April 30 to about 7.2% at the end of last week and into this week, bringing buyers a modicum of relief. The Fed held interest rates steady and kept open the possibility of a rate cut later this year at their May 1 meeting, and last Friday’s soft jobs report was another step in the right direction. 

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