Buyers continue to hold out as rates stay put
Mortgage rates remained nearly flat as the market awaits the Fed’s next move. Meanwhile, inventory is still growing — but “sellers are pulling back.”
Key points:
- Mortgage rates averaged 6.78% this week, ending a three-week decline.
- Next week’s Federal Reserve meeting should shed some light on the timeline for rate cuts, which many analysts expect to start in September.
- With home sales lagging, inventory continues to build — but prices are still going up, albeit at a slower pace.
After a steady three-week decline, mortgage rates barely budged this week — and home sales have grounded to a halt as buyers wait to see what the Federal Reserve will do.
The 30-year fixed-rate mortgage averaged 6.78% this week, nearly unchanged from last week's 6.77% average, according to the latest Freddie Mac survey. The 15-year fixed-rate was also up slightly, to 6.07%.
Rates appear to be in a bit of a holding pattern ahead of next week's Federal Reserve meeting. The agency is not expected to cut interest rates at the July meeting but will likely signal whether cuts are coming soon.
Investors and analysts are expecting a September rate cut, but there's still a possibility that the Fed could disappoint and send rates higher, said Danielle Hale, chief economist at Realtor.com.
"Most likely, however, even if the Fed pledges only to remain 'data dependent,' investors believe the data is consistent with a cut in the next month or so, and that should help mortgage rates remain steady to slightly lower," Hale said.
Canada isn't waiting: The central bank announced its second interest rate cut in two months, dropping its key policy rate to around 4.5%. Canada's economy has generally been slower than the U.S. economy this year, with its unemployment rate at 6.4% in June. The U.S. unemployment rate was 4.1% in June.
Applications decline
Meanwhile, potential homebuyers are still waiting for the math to pencil out.
The unadjusted Purchase Index for mortgage applications was down 4% in the past week and is 15% lower than a year ago, according to the Mortgage Bankers Association.
"Purchase applications decreased as ongoing affordability challenges persist with rates at their current levels and with home-price appreciation still strong in many markets," said Joel Kan, MBA's deputy chief economist.
Inventory may peak soon
With home sales remaining sluggish, inventory continues to move toward a more balanced market between buyers and sellers. Existing sales were down 5.4% in June year-over-year, while sales of new homes were down 7.4% compared to a year ago.
In its four-week rolling report, Redfin noted that new listings are up 6.1% year-over-year and active listings are up 18.7%.
That bumped the months of supply to 3.6, according to Redfin. When looking at just existing home sales, the latest data from the National Association of Realtors puts that number at 4.1 months. A balanced market is considered four to six months of supply.
Mike Simonsen, founder of Altos Research, expects inventory to peak late in the summer or early fall, ending the year with about 20% more inventory than a year ago. Supply will still be well below pre-pandemic levels, however, and the data points to the pace of new listings slowing in the second half of the year.
"As of right now, it looks like sellers are pulling back, and we're going to keep a lid on inventory growth as a result," Simonsen said.
That should slow down price growth, but it will remain up year-over-year in the near term, said Doug Duncan, Fannie Mae's chief economist. Last month, the median existing home sales price hit a record high, reaching $426,900.
"The housing market continues to wait for affordability to improve, even as the supply of new and existing homes for sale slowly rises," Duncan said.