Falling rates haven't seen an uptick in activity – yet
Mortgage rates in the US are on a steady downward trend, with the average 30-year fixed rate currently sitting at its lowest point for over a year – so why isn’t the housing market picking up?
While rates dipped below the 7% mark in July and a flood of new listings hit the market, pending home sales across the country slumped to an all-time low in July, according to National Association of Realtors (NAR) data released last week.
Each of the four US regions posted a decline in pending sales compared with the month prior, suggesting that homebuyers were still caught in two minds about entering the market despite the prospect of lower borrowing costs.
That’s due mainly to potential buyers anticipating further rate drops down the line, according to Lock It Lending loan officer Melissa Tubau (pictured top).
Homebuyers waiting to time the market
Tubau told Mortgage Professional America that would-be homebuyers appeared to be waiting out the market to see if rates would fall even lower – and highlighted the upcoming presidential election, which pits vice president Kamala Harris against former president Donald Trump, as another possible factor.
Holding off may not necessarily be the right approach. “People always want to try to time the market perfectly,” she said. “And for me, the only thing is if you wait until rates drop, statistically more people are going to enter the market. Then there’s the idea of competition regarding inventory, regarding home prices.
“No-one’s ever going to be able to time the market 100% perfect. There’s always going to be an adjustment one way or the other and I would say the affordability and price of the home is probably more important than the rate.”
The average loan amount a buyer can qualify for will only fluctuate marginally in the current market when a rate dips slightly, Tubau explained, whereas a busier environment can result in bidding wars and a home price potentially rising by tens of thousands of dollars in value.
The tide is turning for mortgage brokers as interest rates drop! Jonathon Haddad, AIME’s new CEO, urges brokers to adopt an opportunity mindset and capitalize on this “beautiful whirlwind” in the market. https://t.co/zHiU5eECRE
— Mortgage Professional America Magazine (@MPAMagazineUS) September 3, 2024
Rising rates, affordability challenges continue to weigh on homebuyers
The US housing market gathered steam during the COVID-19 pandemic, when dramatically slashed interest rates spurred an upsurge in purchase activity.
But as rates began to creep upwards again in 2022 and 2023, the market began to cool – and in August 2023, pending home sales plummeted 18.2% compared with the same time 12 months prior.
That gauge has seen little uplift since, ticking upwards just twice in 11 subsequent readings (in December 2023 and March this year), with existing home sales also remaining sluggish over the course of the past year.
Still, a recent analysis by Statista showed this year is likely to see existing sales recover somewhat, rising above 2023 levels, with a further upward trend in 2025 – even if activity still probably won’t match the levels of 2020 and 2021.
That’s due in large part to an improved affordability outlook for buyers. Purchase applicants requested a national median mortgage payment of $2,140 in July, according to the Mortgage Bankers Association (MBA), compared with $2,167 the previous month.
The association’s Purchase Applications Payment Index (PAPI), which tracks changes in monthly mortgage payments over time relative to income, has dropped by 3.8% on a year-over-year basis, suggesting brightening prospects for hopeful homebuyers.
Nonetheless, affording a home remains a daunting prospect for scores of Americans, with an annual income of nearly $80,000 required to purchase a typical starter property.
That’s according to Redfin, which indicated in a new report that the typical starter home had sold for a record high of $250,000 in July – up 4.2% from the same time 12 months before and significantly above what was needed during the pandemic.
Wages are on the rise across the US, but not enough to keep pace with a jump in property prices. Redfin’s report said while average hourly earnings increased 3.6% in July year over year, a combination of higher mortgage rates and home prices meant the income needed to buy a starter home had increased by 4.4% since then.
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