Despite the gloomy data, there is hope that a turnaround is on the horizon for U.S. home sales. In September, existing-home sales reached their lowest level in 13 years due to low affordability and a scarcity of previously owned houses on the market. Economists anticipate that this downward trend continued into October, with an expected seasonally adjusted annual rate of 3.9 million homes sold compared to 3.96 million in September. The release of this data is scheduled for Tuesday at 10 a.m.
Searching for Catalysts
The slump in home sales this autumn has been met with few opportunities for a revival. The median sale price, as measured by Redfin, increased by 3.5% to $413,874 in October compared to the previous year, while the supply of available homes remained lower than in the same month last year. These high prices and limited supply have contributed to a sense of pessimism among consumers polled by Fannie Mae regarding home buying in October.
A New Development
However, there is one significant change that has occurred since then: investors are now speculating that the Federal Reserve will cut rates earlier than previously expected. This speculation has put downward pressure on the 10-year Treasury yield in recent weeks, subsequently leading to a decrease in mortgage rates by over a quarter of a percentage point, according to Freddie Mac’s weekly readings. As a result, the average 30-year fixed-rate mortgage reached its lowest level since September at 7.44%.
The Impact of Declining Mortgage Rates on Home Sales
The recent decline in mortgage rates may not have a significant impact on the overall housing market, but it is starting to show some positive effects on mortgage application volume. According to the Mortgage Bankers Association, the weekly volume of home purchase loan applications has increased by a seasonally-adjusted 3% for two consecutive weeks after reaching its lowest level since the mid-1990s.
While this increase in mortgage applications is a promising sign, it will take time to determine whether it will translate into more closed home sales. It's important to note that not all loan applications lead to signed contracts, and recent data collected by Redfin indicates that contract cancellations are on the rise. In fact, October saw the highest rate of canceled deals since Redfin began tracking this data in 2017.
However, economists are pointing out that the potential for further decline in mortgage rates is more significant than the current 0.35 percentage point drop. Lawrence Yun, Chief Economist at the National Association of Realtors, believes that we have already reached the peak in terms of interest rates. He expects rates to fall to a range between 6% and 7% in the coming spring.
This optimistic outlook on mortgage rates is also shared by industry experts. The Mortgage Bankers Association and Fannie Mae have both forecasted an increase in home sales as mortgage rates continue to decline. In fact, they predict that by the end of 2024, mortgage rates could reach as low as 6.3%, leading to a boost in overall home sales.
In conclusion, while the recent dip in mortgage rates may not have an immediate impact on the housing market, it does provide a glimmer of hope for prospective home buyers. With economists predicting further rate declines, there is a promising outlook for increased home sales in the coming years.
The Path to Spring: Economic Data and Rate Expectations
As we make our way towards spring, the future of mortgage rates hangs in the balance. A surge in economic data or a shift in the Federal Reserve's stance could potentially reverse the current trend.
The prevailing optimism regarding inflation has been instrumental in driving mortgage rates down. However, any factors that prompt market participants to reassess their predictions for rate cuts in 2024 may lead to an upward trajectory for the 10-year Treasury yield and consequently, mortgage rates as well.
Rest assured, this journey to spring holds uncertainties and possibilities, but only time will reveal which direction the wind blows for mortgage rates.
