Mortgage rates, currently pulling back from 8%, signal a ray of hope for sidelined homebuyers. Daryl Fairweather, Chief Economist at Redfin, believes that if rates dip below 7%, a robust year awaits the real estate market. The average 30-year fixed-rate mortgage has already fallen to 7.22% this week, with projections indicating a further decline by year-end. Over the last five weeks, rates have retreated by more than half a point.
Rising Demand as Rates Decline
The recent drop in mortgage rates has already prompted a 5% increase in mortgage applications for home purchases. According to the Mortgage Bankers Association (MBA), this surge occurred in the week ending Nov. 24. Simultaneously, the median monthly mortgage payment has decreased by over $100, making homeownership more attractive.
At the current average rate of 7.29%, a homebuyer would face a median monthly mortgage payment of $2,575—down $164 from the previous month but 13% higher than a year ago, according to Redfin.
Purchase Activity vs. Supply Challenges
Despite the positive signs, purchase activity remains 20% lower than the previous year. Joel Kan, MBA’s Deputy Chief Economist, attributes this to the persistently low supply of existing homes on the market. Limited inventory has reset the threshold for potential buyers contemplating a return to the market.
A Glimmer of Hope: New Listings on the Rise
However, there’s a glimmer of hope for those still on the hunt for their dream home. Redfin’s data reveals that new listings posted their most substantial year-over-year increase since 2021 in the four weeks leading up to Nov. 26. Moreover, new listings have climbed 5.8% year-over-year, marking the most significant uptick in over two years. This surge is a positive sign, driven by various life events such as job changes, marriages, and growing families.
Homeowners’ Dilemma: To List or Not to List?
While some homeowners have listed their properties, a significant portion remains hesitant. Fannie Mae’s housing sentiment index indicates that 37% of homeowners believe it’s currently a bad time to sell a home. Furthermore, 78% of respondents feel that the economy is on the wrong track, up 7 percentage points from the previous month.
The Looming Threat of Bidding Wars
Daryl Fairweather warns of a potential dilemma: falling rates may entice buyers, but reluctant sellers could lead to bidding wars. If rates drop further next year, more buyers may re-enter the market, exacerbating the limited inventory situation and driving up prices. Fairweather hopes for a balanced situation, acknowledging a slight relief in new listings but expressing skepticism about its sustainability into the next year.
According to Redfin, the available inventory of homes on the market equates to 4.2 months of supply as of Nov. 26. However, a balanced market typically requires 4 to 5 months of supply. Fairweather remains cautiously optimistic, emphasizing the ongoing challenge of fewer homes available compared to the growing demand.
As we navigate the dynamics of falling mortgage rates, it becomes evident that the real estate market is at a crossroads. The potential for bidding wars looms large, driven by the delicate balance between falling rates and limited inventory. Homebuyers and sellers alike must tread cautiously, considering the nuanced interplay between market forces and individual decision-making. In the midst of this conundrum, the hope remains that a balanced real estate landscape can be achieved, even as the specter of bidding wars casts its shadow. Only time will reveal the true trajectory of the housing market in the face of evolving economic conditions.