May saw another month of below-par sales activity
There’s little end in sight at present to the sluggishness of the US housing market, with May marking another month of muted performance on the sales side.
Government data released on Wednesday (May 26) showed sales of new single-family homes plunged last month to their lowest level since November, sliding by 11.3% as stubbornly high mortgage rates and housing affordability woes continue to push buyers to the sidelines.
As First American’s deputy chief economist Odeta Kushi pointed out in the wake of the latest market update, the median sale price of a new home across the country has fallen by 9% since the highs of 2022 and ticked slightly downwards (by 0.9%) since the same time last year.
Still, that drop has done little to erase the eyewatering price gains of the COVID-19 pandemic, when an unanticipated market boom saw prices shoot through the roof amid feverish competition and a surge in bidding.
A signal by the Federal Reserve that it’s ready to start bringing interest rates lower might serve as a key indicator among would-be homebuyers that better times are ahead on the affordability front – but the central bank has so far proven unwilling to hint at a possible rate cut, keeping its key rate unchanged yet again in its last announcement.
Don’t expect immediate relief on the rate front, says VP
That decision by the Fed not to cut means housing and mortgage market observers are “back to data watching” as they attempt to discern when – or if – rates will start to come lower in 2024, according to Melissa Cohn (pictured top), regional vice president at William Raveis Mortgage.
She said that while falling inflation and a continuing labor market cooldown would likely see a slight dip in mortgage rates, prospective buyers shouldn’t bank on a significant drop this year.
Inflation ticked lower in May – a positive step, but one that’s unlikely to shake the overall outlook too much, according to Cohen. “If we continue to get reports such as the [last] inflation report we got… and if we see that the jobs numbers calm down, I think rates will… remain sort of where they are today, maybe go a little bit lower, but we’re not going to see any great reduction in mortgage rates,” she said.
Freddie Mac reports a drop to 6.87% on 30-year mortgages, marking 3 weeks of decline. Lamont Harris, Jr. of Harris Capital Mortgage Group cautions high rates could persist in 2024 but sees optimism ahead. https://t.co/UWU4ocqHlZ#mortgagerates #economicoutlook
— Mortgage Professional America Magazine (@MPAMagazineUS) June 25, 2024
The Fed also signaled after its last announcement that it’s likely to cut rates just once in 2024, a noteworthy dialing back from expectations earlier in the year of multiple moves to bring rates down.
For Cohn, that’s a clear message that markets need to take a more cautious and conservative outlook for the longer term on the housing and mortgage markets. “I think they’re telling us, ‘We just need to slow down. We’ll get there, but it’s not going to be today or tomorrow,’” she said.
How is US homebuyer sentiment evolving?
The continuing sleepiness of the US housing market in May suggests that not much has changed since November, when a Fannie Mae survey showed 85% of would-be buyers believed the time was not right to purchase a home.
That survey cited housing unaffordability, inflation woes and a growing sense that the economy was headed in the wrong direction as key reasons behind Americans’ continuing reluctance to take the plunge into the housing market.
Fannie Mae’s monthly homebuyer surveys saw a brief jump in optimism in the opening months of this year – but by June, the share of poll respondents who believed now was a good time to buy a home had dipped to just 14%.
That said, Cohen believes would-be buyers are making a mistake with that outlook, and questioned whether now was really a bad a time as believed to make a purchase. “I think that’s wrong,” she said. “I think if you find the right house at the right price, it’s always a good time to buy if you can afford to buy the house today. When rates are lower in a year, you’ll be able to refinance, and you’ll more comfortably be able to afford it.
“Now, no-one wants to buy. Prices remain high, rates remain high, but remember – when rates come down, more people are going to come back into the market and prices are likely to go up.”
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