Hopelessly-stretched would-be US homeowners caught a small break over the last week, as financing costs for nondescript wooden boxes in the suburbs slipped alongside Treasury yields.

The average 30-year conforming fixed was 7.02%, down a whole 7bps from the prior week’s level, which counted as the highest since May.

It was the first decline since early December, and only the fourth weekly decline since the Fed first cut rates four months ago.

Obviously, the reprieve’s mostly meaningless. If rates were too high for you last week, they’re still too high now. No one’s getting any email blasts from their realtor this week, nor texts from their mortgage broker exhorting them to sign a contract. (“Rates are down, now’s the time!”)

I keep hearing the same line from ostensible housing aficionados: Americans are resigned to higher rates. That may be true, but just because you’re not holding out hope for a big drop in financing costs doesn’t necessarily mean you’re going to run out and buy your dream home, or even a starter home for that matter. For a lot of folks, the math simply doesn’t work. Hold that thought.

Another line I hear fairly often (which is to say every, single week) says the supply picture’s improving on the resale side — i.e., for existing homes. I suppose that’s true in some locales (I’m not going to argue with the data), but as a reminder no one needs, the vast majority of the nation’s mortgage stock carries a rate below 6%, as illustrated below.

That imposes a ceiling on voluntary trade-ups: Unless you’re just determined to get out of the house you’re in and into a “better” one, you’re not going to swap a five-handle mortgage for a seven-handle.

I readily concede the notion that enormous home equity gains since the pandemic mitigate that dynamic. If you’re sitting on a six-figure, four-year windfall on top of the home equity you already had, you might very well be willing to cash out of your current property, put that money towards a trade-up and take on a small mortgage for the balance. But don’t forget: You’re going to pay a whole helluva lot more for that trade-up because it too appreciated by 30% (or more) since 2019.

Anyway, mortgage apps were “little changed” over the last week, MBA SVP Mike Fratantoni said, calling 7% “a key psychological level, which likely continues to slow the pace of activity for both refinances and purchases.” (Yes, “likely” so.)

A quick check of Redfin’s market analysis and news section (which regular readers know I love and highly recommend), shows pending home sales dropped sharply in December, falling 4.5% MoM, the biggest drop in two years. Moreover, Lily Katz noted that some 40,000 deals were called off last month, “equal to 16% of homes that went under contract.” That, she went on, is “the highest December percentage on record.”

Note from the chart, above, that December’s canceled deals very nearly matched the share nixed during the earliest days of the pandemic.

In a separate update, Katz said home prices rose last month on a YoY basis in all 50 of the top US metro areas, “the first time that has occurred since May 2022, when the pandemic home-buying frenzy caused prices to skyrocket.”

So, yeah. It’s rough out there. Rates are high and prices are too. On Wednesday, the MBA’s Fratantoni gently suggested buyers probably can’t count on material rates relief anytime soon. “Incoming economic data are likely to keep the Fed on hold, while uncertainties about economic policy are likely to keep longer-term rates, including mortgage rates, steady at these levels,” he wrote.