US Real Estate Market: Buyers Hold Out Amid Flat Rates

As mortgage rates stabilize, buyers hesitate while inventory rises. Explore the shifting dynamics in the US real estate market.

Mortgage rates have exhibited a remarkable stability, remaining virtually unchanged as the market holds its breath in anticipation of the Federal Reserve's forthcoming decisions. Concurrently, while inventory levels are on the rise, there is a noticeable retreat among sellers. Following a consistent three-week decline, mortgage rates have barely shifted this week, leading to a stagnation in home sales as prospective buyers adopt a wait-and-see approach regarding the Fed's actions. According to the latest Freddie Mac survey, the average rate for a 30-year fixed mortgage stood at 6.78%, a slight increase from last week's 6.77%. The 15-year fixed-rate mortgage also saw a minor uptick, now averaging 6.07%. Rates seem to be in a holding pattern as the Federal Reserve's meeting approaches. Although a reduction in interest rates is not anticipated during the July meeting, indications may emerge regarding potential cuts in the near future. Market participants are speculating about a possible rate cut in September; however, there remains a chance that the Fed could surprise the market by raising rates instead. "Most likely, even if the Fed commits to being 'data dependent,' investors are inclined to believe that the data aligns with a forthcoming cut, which should help keep mortgage rates stable or slightly lower."

In contrast, Canada is taking decisive action, with its central bank announcing a second interest rate cut in just two months, reducing its key policy rate to approximately 4.5%. The Canadian economy has been lagging behind its U.S. counterpart this year, evidenced by an unemployment rate of 6.4% in June, compared to the U.S. rate of 4.1% during the same period.

As the market evolves, potential homebuyers remain hesitant, grappling with affordability challenges. The unadjusted Purchase Index for mortgage applications has declined by 4% over the past week and is down 15% compared to the same time last year, as reported by the Mortgage Bankers Association. "Purchase applications have decreased as ongoing affordability challenges persist, with current rates and robust home-price appreciation in many markets."

Inventory levels are projected to peak soon, as sluggish home sales contribute to a more balanced market dynamic between buyers and sellers. Existing home sales fell by 5.4% year-over-year in June, while new home sales decreased by 7.4% compared to the previous year. Redfin's four-week rolling report indicates that new listings have risen by 6.1% year-over-year, with active listings up by 18.7%. This has resulted in a months-of-supply figure of 3.6, according to Redfin. When focusing solely on existing home sales, the National Association of Realtors reports a supply figure of 4.1 months. A balanced market is typically characterized by four to six months of supply.

Expectations suggest that inventory may peak late in the summer or early fall, potentially concluding the year with approximately 20% more inventory than the previous year. However, supply levels will still fall short of pre-pandemic figures, and data indicates a slowdown in the pace of new listings during the latter half of the year. "Currently, it appears that sellers are pulling back, which will likely cap inventory growth. This should temper price increases, although year-over-year prices will still remain elevated in the near term." Last month, the median price for existing home sales reached a historic high of $426,900. "The housing market continues to await improvements in affordability, even as the supply of new and existing homes for sale gradually increases."