Lower rates attract refinancing — are home buyers next? 

The first week following the Federal Reserve's decision to start cutting interest rates showed some signs of life but no big rally in the real estate industry.

Mortgage rates were particularly quiet this week, according to Freddie Mac's Sept. 26 survey. The 30-year fixed-rate mortgage averaged 6.08%, down slightly from last week's 6.09%. The 15-year fixed-rate ticked up to 5.16%.

Applications for mortgages jumped this week, but most of it came from those looking to refinance, according to the Mortgage Bankers Association. MBA's refinance index rose 20% from the previous week while the purchase index rose only 1%.

While the level of refinance activity is still modest, it now accounts for the majority of applications, said Joel Kan, MBA's deputy chief economist.

The news around last week's Federal Reserve rate cuts did seem to perk the interest of homebuyers, however. Redfin reports its homebuyer demand index rose 1% for the four weeks ending Sept. 22, the first increase in nearly a year. The index uses tours and other home buying services to calculate demand.

Rates expected to remain steady: With the dust starting to settle after last week's announcement, rates are likely to stabilize with the 30-year mortgage rate hanging around the 6%-6.2% range, said Realtor.com Economist Jiayi Xu.

Will that level be enough to prompt more sales? August pending sales were fairly quiet, rising 0.6%, according to a Sept. 26 report from the National Association of Realtors. That's a sign that mortgage rate drops that took place last month were not enough to attract many buyers, said Odeta Kushi, deputy chief economist for First American.

"On a more optimistic note, purchase mortgage applications - another leading indicator of home sales - are trending up in September… suggest that the once frozen housing market may be starting to thaw," Kushi said.

Improving inventory: Sellers appear to be reacting to the lower mortgage rates as well. Redfin's rolling four-week report found new listings up 7.6% compared to a year ago while active listings are up 18.1%. It estimates the national months of supply at 4.1, the highest since February.

Joining the rise in new listings is a jump in the median asking price, up 5.4% year-over-year.

However, there are still challenges for sellers. Redfin also noted that 48% of all home listings have gone "extra stale," sitting unsold after 60 days on the market. That's the highest share since Aug. 2019.

"We usually see home sales pick up when mortgage rates fall, but this year we are seeing the opposite—sales are dropping and homes are sitting longer on the market," said Redfin Senior Economist Sheharyar Bokhari.  "Last week's big interest rate cut by the Federal Reserve will give buyers a boost in confidence, but it remains to be seen whether sales will speed up in any meaningful way as we move into the slower Fall season."

All of these signals seem to indicate that there are home buyers with more choices this fall, but so far they aren't pouncing.

"Many looking to purchase a home are playing the waiting game to see if rates decrease further as additional economic data is released over the next several weeks," said Sam Khater, Freddie Mac's chief economist.