After mortgage rates shot up three years ago, the housing market slowed. And the newest numbers from the National Association of Realtors (NAR) show only a glint of improvement: Sales of existing homes rose 2% in July, compared to a month earlier.
At the current pace, the association estimates that about 4 million existing homes will be sold in the U.S. this year. That's far lower than during the pandemic, and significantly lower than before the pandemic.
But there is a bright spot or two in the new figures. First: A lot more homes are for sale. "We now have the highest inventory since the 2020 lockdown period, essentially five years ago," said Lawrence Yun, the association's chief economist.
In July there were 1.55 million units for sale, nearly 16% more than a year earlier.
The increase in inventory is good news for buyers, because it gives them options and more leverage to negotiate. (For sellers, it's not so good. Homes are taking longer to sell — an average of 28 days, compared to 24 days in July 2024, according to the NAR.)
Also, prices are softening in many markets: A report by Realtor.com found that prices in July dropped in 33 of the 50 largest metro areas. NAR's data showed price declines in the South and West, and home prices are now increasing at their slowest pace in two years, according to an analysis by Wells Fargo.
Still, nationwide, prices were up — although minimally — to a median price of $422,400.
High prices deter buyers, but more listings help
The market is slow because prices and mortgage rates are high.
Rates for a 30-year mortgage are currently averaging about 6.6%. And home prices have risen a lot — nearly 50% since before the pandemic. Put those together, and it means that many people who want to buy a home simply can't afford to.
Still, even a small shift in mortgage rates is enough to help loosen things up slightly. Mortgage rates have inched down in recent weeks, and are now at their lowest level since October 2024.
That has spurred a jump in refinance activity, especially among homeowners with mortgage rates above 7%. It's offered them a window to get a lower rate and shave potentially hundreds of dollars off their monthly payments.
In the months ahead, Joel Kan, deputy chief economist at the Mortgage Bankers Association, says some "opposing forces" will affect mortgage rates.
"Our forecast is for rates to stay close to the 6.6% range, at least through the end of the year," he said. But the Federal Reserve Board meets in mid-September for a vote on whether to lower interest rates — which can influence mortgage rates. "You certainly have the expectation that if the Fed does start to cut rates, rates might come down," he continued. "On the other side, you do have things like concerns around the debt and the deficit of the U.S. that is keeping rates higher."
And to make things even more complicated, Kan says, it's likely that anticipation of a possible interest rate cut is already being factored into current mortgage rates — which means a cut might not cause mortgage rates to drop further.
Still, Kan expects some change next year, when he thinks rates could get down to the 6.5% range, with weeks where they dip below that mark. Lower rates could push some would-be buyers off the sidelines, because they'll help make the homebuying math work — as long as prices don't spike.
The lock-in effect is easing a bit
During the pandemic, many homeowners were able to buy or refinance at super-low mortgage rates in the 3% range. Today, those low rates give them a strong incentive to stay put, since moving would mean taking on a higher-priced loan.
That's left many U.S. households stuck in homes that are too small or too large — and unable to trade for a better fit. Economists have worried that this "lock-in effect" would keep the housing market stuck for many years.
The rising inventory level reported by the NAR this week is a sign that some people are moving out, and giving up those low rates.
"We are still below pre-COVID [levels], but certainly we are no longer in that mortgage rate lock-in period. As people need to move, people are putting their homes on the market and making the next moves," says Yun. "The turnover in the home sales market still remains very very sluggish, but the inventory is beginning to show up."
Mixed indicators on new home construction
New data this week from the Census Bureau shows that housing starts in July were up 5% over a month earlier. But building permits were down nearly 3% compared to June.
Buddy Hughes, chairman of the National Association of Home Builders, said in a statement that reductions in homebuilding are the result of affordability challenges for buyers, a shortage of skilled labor and high regulatory costs.
"These headwinds were reflected in our latest builder survey, which indicates that affordability is the top challenge to the housing market," Hughes added.
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