U.S. Home Sales Fall Despite Lower Mortgage Rates and More Inventory

U.S. home sales have taken a hit, despite the fact that mortgage rates have dropped and there's more inventory available. This is a puzzling trend, especially considering the benefits of lower mortgage rates and increased inventory.

According to recent data, existing home sales fell 1.1% in January, marking the fourth consecutive month of decline. This decline is a significant concern for the housing market.

Many potential homebuyers are still struggling to secure financing, which is a major obstacle to purchasing a home. In fact, the percentage of homebuyers who are first-time buyers has been steadily decreasing over the past few years.

The drop in home sales is also attributed to the decrease in new home sales, which fell 1.5% in January. This suggests that the issue is not just limited to existing home sales, but also affects the new home market.

The average 30-year mortgage rate has dropped to its lowest level in 15 months, currently sitting at 6.46%. This is a slight relief for home shoppers navigating a brutal housing market.

A year ago, the average rate was 7.23%, so we've seen a significant decrease in borrowing costs. The rate has now fallen to the lowest it's been since mid-May last year, when it was 6.39%.

The average rate on 15-year fixed-rate mortgages also fell this week, good news for homeowners seeking to refinance their home loan at a lower rate. The average rate fell to 5.62% from 5.66% last week.

Mortgage rates are expected to continue trending lower overall this year, as signs of waning inflation and a cooling job market have raised expectations that the Federal Reserve will cut its benchmark interest rate next month for the first time in four years.

The U.S. housing market has been in a deep sales slump dating back to 2022, when mortgage rates began to climb from pandemic-era lows. Existing home sales sank to a nearly 30-year low last year as the average rate on a 30-year mortgage surged to a 23-year high of 7.79%.

Investors are increasingly competing with first-time homebuyers, with investors buying 19% of houses in August, up from 13% in July. This trend has led to a decline in first-time buyers, who made 26% of transactions in August, down from 29% in July.

The average 30-year mortgage rate has dropped to 6.46%, the lowest level in 15 months, providing some relief for home shoppers. This rate is now the lowest it's been since mid-May last year.

Borrowing costs on 15-year fixed-rate mortgages have also fallen, with the average rate dropping to 5.62% from 5.66% last week. This decline in mortgage rates is expected to continue, with signs of waning inflation and a cooling job market raising expectations for a Federal Reserve rate cut.

More consumers are feeling hopeful about the future of the housing market, with almost 40% expecting mortgage rates to decline in the next year, a 10 percentage point increase from last month.

The number of people who believe home prices will fall in the next year has also increased, from 21% in July to 25% in August.

Lower mortgage rates could be a major factor in improving affordability for home buyers. In fact, Redfin reports that 6 out of 7 people with mortgages have an interest rate below 6%.

The Federal Reserve's decision to cut the central bank's influential interest rate by 50 basis points in early September has put more downward pressure on mortgage rates, giving buyers even more purchasing power.

Here's a rough breakdown of the changes in consumer sentiment:

While lower mortgage rates are a positive sign, it's worth noting that prices continued to rise in August on a year-over-year basis, with the median price of $416,700 being 3.1% higher than the year before.

Lower mortgage rates can only do so much to improve the housing market, which has been plagued by a chronic shortage of homes.

The good news is that as more homes are put up for sale, prices could come down. According to Realtor.com, the median home price has grown more than 36% from July 2019.

The number of homes for sale that have cut their asking price has grown to the most for any August since 2018, the Realtor.com study found.

The easing of competition in the housing market is also contributing to lower prices. Realtor.com found that in August, the median price of homes for sale decreased by 1.3% compared to the same time last year.

Regional sales have taken a hit, with the South and Midwest experiencing the biggest declines. The South saw a 6.4% drop in sales, while the Midwest followed with a 5.8% decline.

The West, however, managed to post a modest 0.3% increase in sales. This regional variation suggests that the factors driving the national decline in home sales are complex and multifaceted.

In the South, for example, sales were hurt by a 4.5% decline in the number of existing homes sold. This was the largest decline of any region.

The market factors contributing to the decline in US home sales are complex and multifaceted.

The National Association of Realtors reported that existing home sales fell 1.7% in December, with a total of 4.94 million homes sold.

Low inventory levels are a major issue, with the number of available homes on the market decreasing by 10.5% from the previous year.

Home prices continue to rise, with the median existing home price increasing 3.8% from December 2020 to $270,900.

Buyers are also facing higher mortgage rates, despite the recent decline, which is making it more expensive to purchase a home.

The 30-year fixed-rate mortgage rate averaged 3.45% in December, down from 3.72% in November, but still relatively high compared to historical averages.

Home sales in the US have been declining, despite a recent drop in mortgage rates. The average rate offered for a 30-year mortgage fell to 6.35% by the end of August, its lowest in more than a year.

According to the National Association of Realtors, sales of existing homes fell 2.5% in August from July, and remained near historically low levels. This is a concerning trend, especially given the fact that a majority of consumers still think that now is not a good time to buy a house.

A recent survey by Fannie Mae found that only 17% of consumers said now is a good time to buy a home, unchanged from a month before and one percentage point lower than the same time last year. This lack of confidence in the housing market is likely due to the high mortgage rates and low for-sale inventories.

Here are some key statistics to keep in mind:

The number of houses for sale has ticked up 0.7% over the month to 1.35 million, but this is still far below the inventory of 1.83 million in August 2019 before the pandemic hit. This chronic housing shortage is a major reason for the frozen market and is likely to remain a challenge until the country's housing supply improves.