Mortgage rates still not low enough to spark buyer interest
The Fed is expected to cut interest rates next month, but it could take a big drop to spur a rebound in sales — though things are starting to look up.
Key points:
- The 30-year fixed-rate mortgage averaged 6.46% this week, down slightly from last week’s average.
- While existing sales grew between June and July, they remained down 2.5% year-over-year. Home prices continued to rise, impacting affordability.
- More would-be buyers are looking at homes, but that hasn’t yet translated to sales.
As the summer shopping season winds down, mortgage rates around 6.5% don't appear to be motivating potential homebuyers.
The 30-year fixed-rate mortgage averaged 6.46% this week, according to the latest Freddie Mac survey. That's down from 6.49% a week ago but relatively flat over the past two weeks. It marks a big decline from a year ago, however, when rates averaged 7.23%.
Rates will probably need to drop into the 5.5% range to generate buyer demand, said Sam Khater, Freddie Mac's chief economist. That's not expected to happen in 2024, but Khater thinks "rates will gently slope downward through the end of the year."
For now, it's still a waiting game. Many prospective buyers and sellers may be waiting to act until September, when the Federal Reserve is expected to announce a rate cut, said Jiayi Xu, an economist at Realtor.com. With inventory on the rise, that could mean more opportunities for those in the market.
"This is likely to bode well for buyers in the fall — a typically advantageous season for home shoppers," Xu said.
Sales remain sluggish
The lethargic economic reports this week support the idea that rates need to come down more before activity will pick up. Existing home sales rose 1.3% in July compared to June, snapping a four-month skid, but sales remain down 2.5% compared to a year ago, according to the National Association of Realtors.
Even with the slight uptick in sales, NAR's report painted a discouraging picture for buyers struggling with affordability. Last month, the median sale price of those existing homes was $422,600, up 4.2% year-over-year and the 13th consecutive month of year-over-year price gains.
Mortgage applications stall
Even with rates at the lowest level in more than a year, weekly applications for purchase loans were down 7% compared to a week ago and down 8% year-over-year, according to the Mortgage Bankers Association. Refinance applications remained 23% higher than a month ago, said Joel Kan, MBA's vice president and deputy chief economist.
Forecasters are also tempering home sales expectations for the rest of 2024. Fannie Mae's Economic and Strategic Research Group said in an Aug. 21 report that total sales of new and existing homes will be lower than previously forecast, estimating 4.78 million for the year, down from 4.81 million.
"Even with moderately lower mortgage rates, affordability remains close to historic lows due to the high level of home prices relative to incomes," said Mark Palim, Fannie Mae's deputy chief economist.
Silver lining: Tours are up
Sales may not have picked up much steam, but buyers are showing more interest. Redfin reported that touring activity is up 9% since the beginning of the year, based on ShowingTime data, and Redfin's demand index is up 4% from a month earlier but down 8% year-over-year.
"Over the last two weeks, I've seen momentum build and I've felt clients get more excited about the prospect of buying or selling a home," said Gregory Eubanks, a Redfin Premier agent in Los Angeles. "That stems from encouraging economic news and speculation that the Fed is going to cut interest rates in September. Some people are actively searching and listing their homes right now, and others are still hoping rates drop more significantly before making a move."
Supply continues to build as well, with inventory up 18% year-over-year — but as fall approaches, the pace is slowing down, according to Redfin's four-week rolling average.