The fall housing rally may have come and gone
September’s low rates gave pending sales a boost, but as mortgage rates climb for a fifth straight week, enthusiasm is expected to wane.
Key points:
- The 30-year fixed-rate mortgage averaged 6.72% this week according to Freddie Mac, while a daily survey has it hovering around 7%.
- One piece of good economic news: Inflation is near the Federal Reserve’s target of 2%.
- Inventory appears to be peaking and is expected to decline during the holidays.
The U.S. economy has been looking up lately — as long as you don't want to buy or sell a house. Then the picture is still pretty grim.
That's largely due to mortgage rates, which rose for the fifth consecutive week, according to the latest Freddie Mac survey. The 30-year fixed-rate mortgage averaged 6.72% this week, a big jump from last week's 6.54% — but still well below a year ago when rates averaged 7.76%.
The 15-year fixed rate averaged 5.99%, up from 5.71% the previous week.
Mortgage News Daily, which uses a different set of criteria to determine the average rate, reported the 30-year mortgage was 7.02% on Oct. 31, the fourth straight day it was at or above 7%.
Stability ahead?
Rates may be heating up, but inflation continues to cool. The U.S. Bureau of Economic Analysis reported that prices rose 2.1% in September, just above the Fed's 2% target level.
The coming days could provide some clarity on what's next for mortgage rates. A key jobs report is scheduled to come out on Friday, followed by the presidential election next week.
"While volatility has been the theme of mortgage rates over the past several months, we expect stability to reemerge towards the end of November and into early December," said Ralph McLaughlin, senior economist at Realtor.com.
It appears that any late-season rally in home sales may have already happened — in September, when mortgage rates were closer to 6%. Pending sales in September rose 7.4% compared to August, reaching their highest level since March, according to the National Association of Realtors. Year-over-year, pending sales rose 2.6%.
The monthly increase in deals suggests that both buyers and sellers are very interest-rate sensitive, said Odeta Kushi, deputy chief economist at First American.
"Looking ahead, our baseline expectation is that mortgage rates will gradually decline, which should bring more buyers and sellers off the sidelines," Kushi said.
Applications remain sluggish
Mortgage applications are giving mixed signals. While refinance applications were down 6% from the week before, purchase applications rose 5% for the same period, according to the Mortgage Bankers Association. Overall, however, the trend is that applications are slowing, said Joel Kan, deputy chief economist at MBA.
"While near-term purchase application activity has weakened, we continue to expect housing demand from younger homebuyers to support purchase growth over the next few years as for-sale inventory loosens gradually," Kan said.
While the market waits for mortgage rates to ease, inventory has started to tick down with the approach of the holiday season, according to Altos Research. Inventory is significantly higher than in recent years, but still around 21% lower than in 2019, before the pandemic.