In recent developments, the Federal Reserve’s anticipated interest rate cut has significantly impacted mortgage rates. Over the summer, particularly in August, mortgage rates saw a notable decline in anticipation of the Federal Reserve’s first interest rate reduction in several years. Following the actual rate cut by half a point last week, mortgage rates fell slightly further. The latest figures indicate that the weekly average 30-year fixed mortgage rate is currently at 6.08%, while daily rates are slightly higher at 6.21%.
The dip in mortgage rates was expected to stimulate the housing market; however, apart from a substantial wave of refinancing, the overall impact has been limited. In August, pending home sales—a metric indicating offers accepted by sellers and a predictor of future market trends—rose by 0.6% from the previous month, according to recent data. Nevertheless, these figures still reflect a year-over-year decline. The National Association of Realtors’ Chief Economist, Lawrence Yun, attributed the slight rise to improved housing affordability due to lower mortgage rates in August. However, he noted that contract signings remain significantly low despite continually rising home prices.
Similarly, existing home sales witnessed a 2.5% decrease in August compared to July, and a 4.2% drop from the previous year. This trend suggests that lower mortgage rates have not substantially influenced prospective buyers and sellers. Yun expressed disappointment over the decline in home sales but remained optimistic that lower mortgage rates combined with increased inventory might boost sales in the coming months.
The market for new homes has been a relative bright spot amidst an otherwise sluggish housing market. Homebuilders have employed tactics such as mortgage rate buydowns to attract buyers. Additionally, the rapid rise in mortgage rates from pandemic lows has caused a lock-in effect, reducing the number of existing homes for sale. This shortage has created opportunities for builders, resulting in a 9.8% increase in new home sales from the previous year, albeit with a 4.7% month-over-month decline in August.
A senior economist from Zillow pointed to a recent survey from the National Association of Home Builders, which highlighted increased builder confidence and a decline in the percentage of builders reducing prices or offering incentives. This suggests that the monthly drop in new home sales might be temporary.
Regarding home prices, various metrics reveal differing trends. The Case-Shiller index reported a 5% year-over-year increase in home prices for July, achieving another all-time high, although the pace of increase has slowed. The median price for existing home sales in August was $416,700, a 3.1% rise from the previous year. Conversely, the median price for new houses was $420,600, a 4.6% decline from the prior year.
All this data predates the Federal Reserve’s recent interest rate cut. While the reduction in rates has been anticipated and partially priced in, mortgage rates have not declined significantly since the actual cut. Nevertheless, rates are currently at their lowest level in two years. The impact of these changes on September sales data remains to be seen, and it may take some time for the full effects to materialize.
