After the spike in mortgage rates three years ago, the real estate market slowed down. And the latest numbers from the National Association of Realtors (NAR) show only 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 about 4 million existing homes will be sold in the US this year. That number is much lower than during the pandemic and significantly lower than before the pandemic.
But there are one or two positive points in the new numbers. First, there are many more homes for sale. “Now we have the largest inventory since the 2020 lockdown period, essentially five years ago,” said Lawrence Yun, chief economist of the association.
In July, there were 1.55 million units for sale, nearly 16% more than the previous year.
The increase in inventory is good news for buyers, as it gives them options and more room to negotiate. (For sellers, the situation is 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 falling in many markets: a Realtor.com report found that prices in July fell 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, nationwide, prices rose — albeit minimally — to a median price of US$ 422,400.
High prices deter buyers, but listings help
The market is slow because prices and mortgage rates are high.
Rates for a 30-year mortgage are currently averaging around 6.6%. And home prices have risen sharply — nearly 50% since before the pandemic. Adding it all up, 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 fallen gradually in recent weeks and are now at the lowest level since October 2024.
This has boosted refinancing activity, especially among homeowners with mortgage rates above 7%. It offered them a chance to get a lower rate and potentially save hundreds of dollars on their monthly payments.
In the coming months, Joel Kan, deputy chief economist of the Mortgage Bankers Association, says some “opposing forces” will affect mortgage rates.
“Our forecast is that rates will remain near the 6.6% range, at least until the end of the year,” he said. But the Federal Reserve Board meets in mid-September to vote on cutting interest rates, which could influence mortgage rates. “There’s certainly the expectation that if the Fed starts cutting rates, mortgage rates could fall,” he continued. “On the other hand, there are concerns about US debt and deficits that are keeping interest rates higher.”
And to complicate things further, Kan says, the expectation of a possible interest rate cut is likely already priced into current mortgage rates, meaning a cut might not cause an even bigger drop.
Still, Kan expects some change next year, when he believes rates could fall to the 6.5% range, with weeks below that mark. Lower rates could lure some potential buyers, as they would help make the homebuying math work — as long as prices don’t spike.
The lock-in effect is waning a bit
During the pandemic, many homeowners were able to buy or refinance with extremely low mortgage rates, in the 3% range. Today, those low rates give them a strong incentive to stay put, since moving would mean taking on a more expensive loan.
This has left many American families stuck in homes that are too small or too large — and unable to find one that fits better. Economists fear this “lock-in effect” will keep the housing market stagnant for years.
The inventory increase 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 real estate market is still very slow, but inventory is starting to appear.”
Mixed indicators on 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 main challenge for the housing market,” Hughes added.
Source: npr.org by Laurel Wamsley