Mortgage Rates Decline
Mortgage rates dipped this week, with the average rate for a 30-year fixed home loan decreasing from 6.78% last week to 6.73% for the week ending August 1, according to Freddie Mac.
“Mortgage rates declined to their lowest level since early February,” stated Sam Khater, Freddie Mac’s chief economist.
While this drop is welcomed news, many potential buyers are adopting a wait-and-see approach, hoping for a more substantial rate cut this fall. This hesitation is impacting all aspects of homebuying and selling.
“The housing market is showing subtle signs of change this week, with new listings falling, total inventory growing, and homes spending longer on the market,” says Realtor.com® economist Joel Berner.
Autumn Mortgage Rate Outlook
Anticipation is high for a significant mortgage rate cut soon. However, Realtor.com economist Jiayi Xu advises buyers to temper their expectations.
“While the potential rate cut in September will be a good start to bring the rate down, subsequent drops in mortgage rates may not be as significant as many anticipate because the market is already pricing in rate cuts, and such expectation is reflected by recent rate drops,” says Xu.
Without a substantial rate cut, the housing market might remain sluggish due to the “lock-in effect.” According to a recent analysis from Realtor.com, 86% of outstanding mortgage debt has a rate below 6%, with more than three-quarters having a rate of 5% or lower.
This scenario suggests the housing market may continue to be sluggish.
Home Prices Fell Slightly
The median listing price for the week ending July 27 dipped 0.2% year-over-year, marking 27 consecutive weeks of annual price growth below 1%. The national median list price was $445,000 in July.
This decline is partly due to a change in the mix of listings on the market as the price per square foot grows and the size of homes on the market decreases.
“As home prices hover at or near record highs, affordability continues to be the top challenge,” says Xu. Consequently, homebuyers seeking affordable homes may find smaller properties currently available more appealing.
If mortgage rates fall and more sellers list properties, more listing price cuts could follow.
Decrease in New Listings
New listings were down by 2.3% for the week ending July 27 compared with the previous year. This dip follows 15 out of 17 weeks of rising fresh listings.
“Potential sellers are not seeing the price increases they hope for in the market and are choosing not to list their homes for sale,” says Berner.
Despite the decrease in new listings, the total number of houses for sale increased by 37.1% year-over-year for the week ending July 27, marking a 38-week streak of growing for-sale homes compared with a year ago.
Market Pace Slows
Homes spent five more days on the market for the week ending July 27 compared to this time last year. The typical home spent 50 days on the market in July.
High prices and mortgage rates continue to force sellers to wait longer to complete their home sales.
“This summer’s slowdown has continued, as each of the past 12 weeks has seen homes sitting on the market longer than they did in the previous year,” says Berner.
While homes are selling more slowly recently, they are still selling faster than they were in the years before COVID-19. Therefore, homebuyers who see a great home should not wait too long to make an offer. Those choosing to wait to enter the market have reason to remain optimistic.
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