Downward Trend in Mortgage Rates Brings ‘More Choices’ to Homebuyers at One-Year Low
US New Home Sales Experience Surge in July
The US housing market has seen a significant increase in new home sales, with numbers jumping by over 10% month-over-month in July. The National Association of Realtors reported existing home sales to have risen by 1.3% month-over-month in the same period.
National Association of Realtors (NAR) Chief Economist Lawrence Yun recently spoke with Brad Smith on Wealth! regarding this data and its implications for the US housing market, particularly following Federal Reserve Chair Jerome Powell’s announcement of plans to lower interest rates in September.
Yun emphasized that the mortgage rate is currently at a one-year low level, sitting under 6.5%, which he believes will have a positive impact on the housing sector. "Definitely, we are in a downward trend in mortgage rates," Yun stated. "Housing sector always one of the most sensitive to the mortgage rate changes… Consequently, mortgage rate today at one year low level, you know, at under 6.5%, we have not seen this for the past 12 months. Very good news."
One of the key factors driving this increase in sales is the decline in mortgage rates. Yun believes that as more people become aware of these lower interest rates, we can expect to see a surge in demand. Moreover, with the inventory of homes on the market increasing, consumers will have more choices, leading to greater dynamism within the housing market.
The Impact of Falling Mortgage Rates
Falling mortgage rates can open up new opportunities for homeowners, especially those who are entering new life stages and wish to sell their current home. Yun believes that these lower rates will encourage a large number of "pentin potential sellers" to list their homes, leading to an influx of sellers onto the market.
To determine whether people who have already refinanced into low rates or locked in on high-interest mortgages will decide to sell because of life changes such as job promotions, better school districts, or increasing family size, Yun suggests looking at trends. "It’s not a 3% or 4% mortgage rate, but it is a positive development for the real estate," he emphasized.
New and First-Time Home Buyers in Focus
Regarding new and first-time home buyers, a significant shift can be expected as they begin to look for their first homes. According to Yun, the critical factor in this decision-making process will involve budget constraints. "Staying within budget" is key, as many prospective buyers are keen on purchasing affordable properties.
Home builders have become increasingly aware of this trend and have been creating more budget-friendly homes, which has contributed significantly to increased sales performance. "In the past couple of years, they stopped building those Mc Mansion," explained. They’re instead focusing on more affordable priced homes." This shift is expected to continue in the future.
Trending Migration Patterns in Home Buying Decisions
From northern colder states, people are moving towards southern climates like the Carolinas, Georgia, and Florida. Similarly, there has been a notable migration trend from California into rocky mountain states such as Arizona, Nevada, Utah, and Idaho. Yun believes that this pattern will also continue.
For instance, some regions in the south are seeing significant growth due to lower living costs and a relatively affordable housing market compared to other parts of the country.
Impact on Home Prices
As the economy continues to experience slow economic growth, the median price of existing-home sales elevated by 4.2% from July 2023, reaching $422,600. This represents the 13th consecutive monthly year-over-year gain in housing prices according to Yun’s reading.
Lawrence Yun serves as Chief Economist at the National Association of Realtors and has extensive knowledge about current market trends in the sector.
