The End of a Punishing Seller's Market
The ongoing battle between inflation and economic growth appears to be driving mortgage rates down from recent highs, with the national average 30-year fixed mortgage dropping to around 5% since peaking just under 6% in mid-June. Slowing economic growth is in charge at the moment. This is welcome news for home buyers, who were wounded by bidding wars in early 2022, then forced to retreat again in response to rapidly rising rates.
The purchase of homes has slowed, with rising rates affecting plans for many buyers. According to the National Association of Realtors, July existing home sales volume dropped -5.9% vs June, but properties were still selling quickly (14 days on average, still a speed record), and prices were still up 10.8% versus one year ago. But the market sentiment is that the market peak is now in the books.
Sellers may be seeing that there is little reason to wait for further appreciation in their home value, so that may be driving the uptick in inventory – up to a 3.3 month supply in July (from 2.6 months in May and 2.5 months a year ago). “Finally, there are more homes on the market,” said Lawrence Yun, NAR’s Chief Economist. "Interestingly though, the record-low pace of days on market implies a fuzzier picture on home prices. Homes priced right are selling very quickly, but homes priced too high are deterring prospective buyers,” he added.
Will Interest Rates Stabilize? The Fed has been attempting to cool inflation by setting higher short-term rates – all without triggering a recession. But GDP fell for the second quarter in a row in Q2, sending a strong recession signal and causing a pause in the rise of longer-term interest rates. The 10-year Treasury yield, which rose steadily for the first half of the year up to about 3.4% is now back down to around 2.9% as recession fears grow. Mortgage rates correlate strongly with the 10-year rate, and these too have tracked lower now. Experts still expect Treasury yields to rise to around 3.8% this year, as the Fed continues to tamp down inflation. That should create a corresponding move in mortgage rates towards the 6% level. It’s important to keep perspective, however - the historical 30-year mortgage average since 1971 is 7.8%. In fact, there are many homeowners today whose first mortgages were in the 9-11% range!
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