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A new era is underway for real estate — one driven by rate cuts, rather than hikes, and in which the ongoing home-sale stagnation should eventually make way for a real recovery.
But as the calendar turns the page to a new season — and as the Federal Reserve has already begun slashing rates — should brokerages expect the nationwide recovery to kick into high gear this fall?
Don’t count on it.
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Affordability remains so out of step for most consumers that it may take months before brokerages feel any kind of significant upward momentum on the national level, an Intel analysis of market data and economic forecasts suggests.
Recent data illustrate the difficulty of a quick turnaround.
- The number of pending home sales — a leading indicator of potential closings a few weeks down the line — came in nearly 6 percent weaker in July than the month before, after accounting for normal seasonal trends.
- Much of the Fed’s 50-basis-point rate cut last week appears to have been already priced in to mortgage markets in the preceding days — with only a small corresponding rise in applications for purchase loans.
Read the impact that these changes are having on consumer attitudes — as well as the implications for new listings, sales and the broader recovery in this fall market — in the full report.
Listless recovery
Even though mortgage rates have come down more than a full point from their peak almost a year ago, the number of new listings coming onto the market remains deeply constrained.
In fact, after posting modest year-over-year gains in most months this year, news listings in August actually fell back below where they were in August of 2023, according to data from Realtor.com.
Chart by Daniel Houston
It’s clear that many homeowners are still sitting on sub-4-percent rates and waiting for the market to come closer in line with what would make sense for them to list their homes.
On the buy side, there are very early signs that some buyers may be starting to come back to the table in recent weeks.
But taking a broader view, this type of shift may not be much more than month-to-month variance. And in recent months, it’s clear that mortgage rates have not fallen far enough to move the needle.
Chart by Daniel Houston
- Over the past four weeks, as mortgage rates continued to fall in anticipation of last week’s Fed decision, the number of purchase-loan applications rose by nearly 12 percent on a seasonally adjusted basis, according to the Mortgage Bankers Association.
- That rise, however, only brings purchase-loan volume back to about where it was in June of this year, after seasonal adjustment.
- Purchase loan volume remains 41 percent below the levels we’re used to seeing in a typical week from 2017 through 2019, prior to the pandemic.
It’s clear that there’s still a steep hill for the housing market to climb heading into the fall. And some housing forecasters are expecting it to be a slow ascent.
A new era
Fannie Mae’s latest housing report, released last week, forecasts that the recovery in existing-home sales won’t begin in earnest until the first quarter of 2025.
- In the third quarter of the year, which is nearing its conclusion, Fannie Mae expects existing-home sales to have fallen by another 5 percent on a seasonally adjusted basis.
- In the fourth quarter of the year, sales would begin to bounce back, but weakly: rising by less than 2 percent from the preceding period after seasonal adjustment.
It’s not until the opening months of 2025 that Fannie Mae’s housing forecast would see a real ramp-up in momentum, despite the turnaround in rate policy.
“Although mortgage rates have fallen considerably in recent weeks, we’ve not seen evidence of a corresponding increase in loan application activity, nor has there been an improvement in consumer homebuying sentiment,” Doug Duncan, Fannie Mae chief economist said Wednesday in a news release.
“We think it’s likely that many would-be borrowers are waiting for affordability to improve even further,” Duncan went on to write, “and that some may be anticipating additional declines in mortgage rates given expectations that the Fed will lower the federal funds target rate.”
- In Intel’s quarterly surveys of U.S. consumers, only a small portion of reluctant buyers said that mortgage rates in the current range of 6 percent to 6.5 percent would persuade them to join the market.
- But once rates drop to the 5.5 percent range, a significant share says they’d consider coming off the sidelines, according to the Inman-Dig Insights consumer survey.
- And if rates were to fall below 5.0 percent, about twice as many reluctant buyers said they might change their minds and buy a home.
The problem, from a forecasting perspective? Fannie Mae economists think rates are likely to average 5.7 percent by the end of 2025.
That prediction is far from a lock, as those economists would freely admit. But if the rate environment were to pan out as Fannie Mae expects, it could spell well over a year of continued constraints on new listings — an effect that would place a damper on just how quickly sales might recover.
