HOME LISTINGS NOTCH 20-MONTH HIGH REMAIN JUST HALF OF THE LONG-TERM
Rates resume climb, further cooling the market. After briefly dipping below 5 percent in early August, the average 30-year fixed-rate mortgage is surging again. Following the Federal Reserve’s fourth interest rate hike this year at the July meeting, the average 30-year mortgage rate reached the mid-5 percent band in the last full week of August. The measure is quickly approaching the 2022 peak of 5.8 percent set two months earlier in June. Higher borrowing costs have created challenges for potential homebuyers this summer. Home purchases have declined for six consecutive months, with the July tally down 19 percent year over-year. As a result, more houses were available for purchase across the U.S. than in any period since November 2020. Given the revived upward pressure on mortgage rates and the likelihood of additional Fed rate hikes before year-end, this may continue to impact the market in the near term.
Sellers adjust expectations, but affordability remains a barrier. The steady rise in home listings, as higher mortgage rates and elevated prices, limit the number of households that qualify to purchase, is coaxing some sellers to recalibrate. The median price of an existing home fell for a second straight month in July to $394,400. Despite this decline, the measure is still up 11 percent year-over-year and 37 percent above the pre-pandemic mark. Because the magnitudes of these recent price drops have been relatively mild, any relief for potential buyers is being offset by rising borrowing costs. This will sustain the rental sector, as a growing number of residents are priced out of ownership.
Reduced mobility may prompt home improvement. Fewer houses are selling, and many homeowners are likely content staying put in the near term as they are locked into lower-rate mortgages. This could encourage some homeowners to improve their current living situations, potentially aiding retail segments like furniture, electronics, building and gardening materials. Self-storage could be utilized as households outgrow their living spaces.