In recent years, the U.S. housing market has faced significant challenges, particularly after mortgage rates surged three years ago. According to the latest data from the National Association of Realtors (NAR), there has been a slight uptick in the market, with sales of existing homes rising by 2% in July compared to the previous month. However, the projected sales for existing homes in 2023 stand at around 4 million—substantially lower than the numbers seen during and before the pandemic.
One positive development in the latest figures is the increase in available properties. The housing inventory has reached its highest level since the lockdown period in 2020. According to Lawrence Yun, NAR's chief economist, there were 1.55 million homes for sale in July, representing nearly a 16% increase from the previous year. This surge in inventory is beneficial for buyers, providing them with more options and greater negotiating power. However, for sellers, the scenario is less favorable, as homes now take an average of 28 days to sell, compared to 24 days in July 2024.
Another noteworthy trend is the softening of home prices in various markets. A report from Realtor.com highlighted that home prices dropped in 33 out of the 50 largest metropolitan areas in July. According to NAR’s data, price declines were particularly noted in the South and West regions, with home prices increasing at their slowest pace in the past two years, as per an analysis conducted by Wells Fargo. Despite these trends, the nationwide median home price saw a slight rise to $422,400.
The sluggish housing market can largely be attributed to the combination of high home prices and elevated mortgage rates. Currently, the average rate for a 30-year mortgage is approximately 6.6%. Since before the pandemic, home prices have surged by nearly 50%, making homeownership unattainable for many potential buyers. However, even a marginal decrease in mortgage rates can stimulate activity in the market. Recent weeks have seen a decline in mortgage rates, reaching their lowest point since October 2024, which has prompted a noticeable increase in refinancing, especially for homeowners with rates above 7%.
Looking ahead, Joel Kan, deputy chief economist at the Mortgage Bankers Association, anticipates that various factors will influence mortgage rates in the coming months. He forecasts that rates will likely remain around 6.6% through the end of the year. The upcoming Federal Reserve Board meeting in mid-September could lead to discussions on lowering interest rates, which would subsequently impact mortgage rates. Kan also noted that the current market may already be factoring in the possibility of an interest rate cut, suggesting that any reduction might not lead to significant drops in mortgage rates.
Throughout the pandemic, many homeowners capitalized on historically low mortgage rates in the 3% range, creating a strong incentive to remain in their current homes. This phenomenon, known as the lock-in effect, has resulted in many households feeling trapped in homes that no longer meet their needs. Nonetheless, the rising inventory levels reported by the NAR indicate that some homeowners are starting to move, relinquishing their low rates to seek better living arrangements. While turnover in the home sales market remains sluggish, the increasing inventory suggests a gradual shift away from the lock-in period.
Recent data from the Census Bureau indicates a 5% increase in housing starts in July compared to the previous month. However, building permits have seen a nearly 3% decline from June, reflecting ongoing challenges in the home construction sector. Buddy Hughes, chairman of the National Association of Home Builders, remarked that the reduction in homebuilding stems from affordability issues for buyers, a shortage of skilled labor, and high regulatory costs.
In summary, while the U.S. housing market is experiencing some improvements in sales and inventory levels, high prices and mortgage rates continue to create hurdles for many potential buyers. The interplay of these factors will determine the market's trajectory in the months ahead.
