Finally, America’s Housing Market Is Starting To Loosen Up. But It’ll Be a Bumpy Road Back
The US housing market has faced challenges this year, with high mortgage rates and prices sidelining prospective buyers and deterring homeowners from selling. However, recent drops in mortgage rates, along with signals that the Federal Reserve might soon cut interest rates, have sparked renewed activity, including a surge in refinancing and an increase in both new and existing home sales. Despite this, it remains uncertain how much and how quickly mortgage rates will continue to decline, with future Fed actions and economic data playing a critical role.
According to CNN, it’s been another rollercoaster of a year so far for the US housing market. Elevated mortgage rates and home prices have pushed prospective homebuyers to the sidelines. In addition, homeowners have been reluctant to put their properties on the market and risk potentially forfeiting the ultra-low mortgage rates they locked in during the pandemic.
That’s created the perfect storm for a housing market that’s been more or less frozen. But anticipation that the Federal Reserve will start cutting interest rates soon is breathing new life into it. The standard 30-year fixed-rate mortgage started to fall earlier this year and recently plunged to its lowest level in more than a year, according to data from mortgage financing giant Freddie Mac. As a result, an influx of homeowners rushed to refinance their mortgages.
Then another piece of encouraging news came Friday: New home sales jumped by more than 10% last month to the highest level since May 2023, the Census Bureau and Department of Housing and Urban Development reported.
On top of that, existing home sales also rose last month, albeit by a much more modest 1.3%, according to data from the National Association of Realtors. That broke a four-month streak of declining sales.
Lower mortgage rates should alleviate some pressure in the housing market, but it might take a while before they drop enough to provide any meaningful respite. The question right now isn’t if the Fed will lower borrowing costs — since Fed Chair Jerome Powell just gave his strongest signal of the first rate cut coming up — but rather by how much and how fast the Fed will cut rates. It’s not clear if the average, standard mortgage rate will drop below 6% this year.
The Fed doesn’t directly set mortgage rates, but its actions do influence them through the benchmark 10-year US Treasury yield. Bond yields have typically fallen at developments encouraging the Fed to cut interest rates, such as unemployment rising or inflation continuing to moderate. And they have risen at signs the Fed could keep rates on hold, such as inflation remaining stubborn.
That means there needs to be more data or speeches from central bankers suggesting lower interest rates in the future in order to make mortgage rates budge. The average mortgage rate has been essentially flat since plummeting earlier this month.
