Residential property buyers are reentering the market, encouraged by the recent decline in mortgage payments and rates, according to real estate brokerage firm Redfin. The median U.S. monthly mortgage payment was $2,587 during the four weeks ending August 18, its lowest level since February and down 0.1 percent from a year earlier. This is the first time in four years that monthly housing payments posted any decline at all. Redfin attributed this fall to declining mortgage rates that have dropped to 6.5 percent—the lowest level in 15 months. Since the beginning of August, rates have been holding steady at this level, attracting buyers to the market.
The demand for homes has also increased, as indicated by Redfin’s Homebuyer Demand Index, which measures requests for home tours and other buying services. It increased by 4 percent from the previous week to its highest level in two months. However, despite the increase in home tours, it hasn’t yet translated to more sales. Home prices continue to remain near record levels, with a 3.6 percent increase from a year ago. Prices rose by 0.2 percent for the second consecutive month in July.
The housing shortage continues to afflict the market, resulting in rising prices, albeit at a slower pace. “There aren’t enough sellers listing their homes to cause prices to fall and there aren’t enough buyers to create competition to drive prices up significantly,” said Sheharyar Bokhari, a senior economist at Redfin. Until the imbalance between supply and demand changes, relatively low sales and gradual price increases will remain the status quo.
The anticipation of the U.S. Federal Reserve cutting its benchmark interest rates in September has also contributed to increased excitement among buyers and sellers. Some people are still waiting for mortgage rates to drop further before making a move in the market. The Fed is set to hold its meeting on September 17–18, and the majority of interest rate traders are expecting a rate cut of at least 25 basis points, with a minority hoping for a 50 basis-point reduction.
Builder confidence in the housing market is on the decline, attributed to a lack of affordability and buyer hesitation stemming from elevated interest rates and high home prices, according to the National Association of Home Builders (NAHB). The NAHB/Wells Fargo Housing Market Index fell by two points in July, reaching its lowest level since December. To boost sales, almost a third of builders have cut home prices, while many used sales incentives to attract prospective buyers.
However, there is hope for improvement in the coming months. Robert Dietz, chief economist at NAHB, expects builder sentiment to improve, pointing to mortgage rates falling “markedly” in the second week of August and potential Fed rate cuts ahead. The average interest rate on a 30-year fixed-rate mortgage has fallen from its peak of 7.22 percent in May to 6.49 percent for the week ending August 15, according to data from Freddie Mac. Mortgage rates are over half a percent lower compared to the same time last year, providing good news for potential buyers and sellers.
