After mortgage rates spiked three years ago, the housing market slowed down. And the latest numbers from the National Association of Realtors (NAR) show just a glimpse of improvement: sales of existing homes rose 2% in July, compared to the previous month.
At the current pace, the association estimates that around 4 million existing homes will be sold in the U.S. this year. That’s far below the pandemic period and significantly below the pre-pandemic period.
But there are one or two positive points in the new numbers. First, there are many more homes for sale. “We now have the highest inventory since the 2020 lockdown period, essentially five years ago,” said Lawrence Yun, the association’s chief economist.
In July, there were 1.55 million units for sale, nearly 16% more than a year earlier.
The increase in inventory is good news for buyers, because it gives them options and more bargaining power. (For sellers, it’s not so good. Homes are taking longer to sell — an average of 28 days, compared to 24 days in July 2024, according to the NAR.)
Additionally, prices are softening in many markets: a Realtor.com report found that prices fell in July in 33 of the 50 largest metropolitan areas. NAR data showed price drops in the South and West, and home prices are now rising at the slowest pace in two years, according to a Wells Fargo analysis.
Still, nationally, prices rose — albeit minimally — to a median of US$422,400.
High Prices Are Keeping Buyers Away, But More Homes for Sale Help
The market is slow because prices and mortgage rates are high.
Rates for 30-year mortgages are currently averaging around 6.6%. And home prices have risen a lot — nearly 50% since before the pandemic. Combined, that means many people who want to buy a home simply can’t afford it.
Still, even a small change in mortgage rates is enough to help loosen things up a bit. Mortgage rates have dipped slightly in recent weeks and are now at the lowest level since October 2024.
That has spurred a jump in refinancing activity, especially among homeowners with mortgage rates above 7%. It gave them a window to get a lower rate and potentially reduce hundreds of dollars from monthly payments.
In the months ahead, Joel Kan, deputy chief economist at the Mortgage Bankers Association, says some “opposing forces” will affect mortgage rates.
“Our forecast is for rates to stay near the 6.6% range, at least through the end of the year,” he said. But the Federal Reserve Board meets in mid-September to vote on whether to cut interest rates, which could influence mortgage rates. “There’s certainly the expectation that if the Fed starts cutting rates, they could fall,” he continued. “On the other side, there are things like concerns around U.S. debt and deficits that are keeping rates higher.”
And to complicate matters further, Kan says it’s likely that anticipation of a possible interest rate cut is already baked into current mortgage rates, meaning a cut might not make mortgage rates fall further.
Still, Kan expects some change next year, when he thinks rates could drop to the 6.5% range, with weeks below that level. Lower rates could jolt some potential buyers out of inertia, because they’ll help make the homebuying math work — as long as prices don’t spike.
The Lock-In Effect Is Easing a Bit
During the pandemic, many homeowners were able to buy or refinance with super-low mortgage rates around 3%. Today, those low rates give them a strong incentive to stay put, since moving would mean taking on a more expensive loan.
That has left many American families stuck in homes that are too small or too large — and unable to trade up or down for something more suitable. Economists feared this “lock-in effect” would keep the housing market frozen for years.
The increase in inventory levels reported by NAR this week is a sign that some people are moving and giving up those low rates.
“We’re still below pre-COVID levels, but we’re certainly no longer in that mortgage rate lock-in period. As people need to move, they’re putting their homes on the market and making the next moves,” Yun says. “Turnover in the home sales market remains very slow, but inventory is starting to show up.”
Mixed Signals in New Home Construction
New data this week from the Census Bureau shows that housing starts in July rose 5% from the previous month. But building permits fell nearly 3% compared to June.
Buddy Hughes, president of the National Association of Home Builders, said in a statement that the reductions in home building are the result of affordability challenges for buyers, shortages of skilled labor, and high regulatory costs.
“These headwinds were reflected in our latest builder survey, which indicates that affordability is the top challenge for the housing market,” Hughes added.
Source: npr.org by Laurel Wamsley