Lower Mortgage Rates Boost US Homebuying Demand | Latest Housing Market Trends 2024

There’s been a lot of talk online suggesting that lower mortgage rates haven’t had much effect on the housing market. However, if we look at the actual data, it becomes clear that lower rates have already made an impact. Let’s break down the numbers to see what’s really happening.

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What Purchase Applications Tell Us

Purchase applications are a key way to measure how many people are planning to buy homes. These applications tend to rise early in the year and drop off after May. Earlier this year, when mortgage rates were high, the numbers weren't great—there were 14 straight weeks of negative data, with only two weeks of flat or positive growth.

However, things began to change in mid-June when mortgage rates started falling. Since then, there have been nine weeks of positive purchase applications and just five weeks of negative data. This shows that lower mortgage rates are encouraging more people to apply for home loans, which is a good sign for the housing market.

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New vs. Existing Home Sales

Lower mortgage rates have been especially helpful for new home sales, which have picked up over the last couple of months. Builders and developers have adjusted to the lower borrowing costs, making it easier for people to buy newly constructed homes.

Existing home sales, on the other hand, have been slower to recover. But with mortgage rates stabilizing, we could see more homeowners listing their properties for sale, which would boost this segment of the market as well.

What to Expect for 2024 Mortgage Rates

For 2024, mortgage rates have been fluctuating between 5.75% and 7.25%. The 10-year Treasury yield, which influences mortgage rates, has ranged from 3.21% to 4.25%. Right now, mortgage rates are at their lowest point of the year, close to 5.75%.

For rates to drop even more, we’ll need weaker economic data or a more lenient stance from the Federal Reserve. Another factor that could help is improving the "mortgage spread"—the difference between mortgage rates and Treasury yields. If this gap narrows, it could push mortgage rates even lower.

Higher Rates Increase Housing Inventory

When mortgage rates go up, so does housing inventory—the number of homes for sale. Over the past two years, whenever rates exceeded 7.25%, we saw a rise in available listings. This year, inventory levels increased six times, with weekly gains ranging from 11,000 to 17,000 new homes on the market.

However, as rates dropped, inventory growth slowed. Between September 6 and September 13, there was a slight uptick, with active listings increasing from 703,646 to 713,660. For comparison, last year’s inventory during the same week rose from 509,892 to 519,458.

In 2022, the market hit an all-time low of just 240,497 active listings. This year’s peak stands at 713,660, still below historical averages but an improvement over last year.

Growth in New Listings

New listings, or homes being put up for sale, have also been on the rise this year. Last year saw historically low new listings as many homeowners decided not to sell due to unfavorable conditions. This year, though, the situation is improving.

Even though the forecast called for at least 80,000 new listings per week during the seasonal peak months, the actual numbers were about 5,000 short. Still, the year-over-year growth in new listings is a positive sign for the market. Here’s how the numbers stack up for the past few years:

• 2024: 65,162
• 2023: 61,162
• 2022: 63,034

While the numbers are slightly below expectations, they show that more homeowners are becoming confident in selling their homes.

Price Cuts and Pending Sales

Over the past two years, rising mortgage rates have led to more homes being sold at a reduced price. Usually, about one-third of homes experience price cuts in a typical year. The number of price reductions increased when mortgage rates were high, but as rates have fallen, price cuts have slowed down.

Pending home sales, which measure the number of homes under contract but not yet sold, have also shown some improvement. Data from Altos Research indicates a seasonal decline, but there has been year-over-year growth. Here are the numbers for pending sales over the last three years:

• 2024: 357,254
• 2023: 345,137
• 2022: 390,335

Although the year-over-year growth is modest, it’s still a sign that lower mortgage rates are bringing more buyers into the market.

What to Expect Next: Key Housing and Economic Data

As we head into the upcoming Federal Reserve meeting, the market is eagerly watching for signs of a potential rate cut. Some expect the Fed to lower rates by 0.25% or 0.50%, which could have a major impact on mortgage rates and housing demand.

In addition to the Fed’s decision, other important data to watch includes builder confidence, housing starts, retail sales, and bond auctions. These factors will give us more insight into the future direction of the housing market.

Lower Mortgage Rates Boost Housing Demand

In summary, the recent drop in mortgage rates has positively impacted the housing market, especially in the new home sales sector. While existing home sales are still lagging, the overall trend is promising. Inventory levels are growing in response to market conditions, and new listings are starting to increase. As we move forward, the Federal Reserve’s decisions and economic data will play key roles in determining how the housing market evolves.

Also Read: US 30-Year Fixed-Rate Mortgage Rate Drops to 6.20% – Impact on Housing Market