The highest mortgage rates in more than 22 years settled into the housing market last week, threatening to make an already sluggish buying environment even more so as autumn approaches. There's little indication that significant rate relief can be expected anytime soon, but trends are known for shifting come September, and the next Fed meeting may provide an opportunity for change, too.
Mortgage rates have been high for a while now but were about a full percentage point below today's levels as recently as about six months ago, which in turn were nearly a full percentage point below levels seen last October and November. It was hoped at the time that mortgage rates just over the six percent mark would help support the spring housing market to some degree, and they did, for a time. However, with few homes available to buy and home prices re-firming (amid the typical seasonal increase in demand) while mortgage rates trended up, there was little reliable traction, and existing home sales faded.
These factors further damped existing home sales in July. July's sales are reflective of demand conditions in June and even late May, and conditions from a few months ago have not improved, so more damping seems in order. Last month, an annualized 4.07 million rate of sales for existing homes was achieved, down 2.2% from June, and the slowest pace for sales since January. Although there were somewhat more homes available for sale, the National Association of Realtors reported 1.11 million units on the market, up 3.7% from June, the number of homes available to buy was still 14.6% lower than the same month a year ago. That equates to 3.3 months of supply available at the current rate of sale, the "thickest" inventories have been in about 10 months. Despite softening sales, the modest and still moderating demand in the market was sufficient to continue to support home prices; the median price of a home sold in July was $406,700, down slightly from June but still third highest all-time by the NAR's data. On an annual reference basis, July's median home price was 1.9% higher than a year ago, breaking a four-month string of this year's prices being lower than those during comparable periods a year ago.
Sales of new homes are of course affected by what's happening with mortgage rates, but conditions in the new home market are rather different. For starters, there's plenty of supply; that said, it's usually not in the places where supply is most needed. In July, there were 7.3 months of new home stock available for buyers to consider, an actual 437,000 homes, the highest number since February. Another factor is that builders can and often do cut home prices to help move inventory if demand starts to flag; there was less needed to do so in July, where the median price of a new home sold rose to $436,000, up $20K from June and the highest since March. In addition, builders can and do offer financing incentives to buyers, paying points or providing other rate buydowns to help make costs more palatable. With flexibilities not available in the existing home market, sales of new homes have generally been trending higher since a bottom last September, and reached an annualized 714,000 units sold in July, the highest figure since February 2022. Sales of new homes are tallied when a contract is signed; however, they are subsequently revised when deals fall though. June's new home sales were revised downward by 13,000 and May's by 11,000, so there's a fair chance that some of the 4.4% increase in sales for July will be partially revised away over time.
The broken-record message of "mortgage applications decline again" was repeated in the week ending August 18, where 4.2% fewer requests for mortgage credit were received by lenders. Applications for funds to purchase homes retreated 5%, a sixth consecutive decline, with only one positive interruption over the last two months. Applications for loans to refinance existing mortgages dropped 2.8%, and the pattern here is much the same as purchases. Certainly, headlines that mortgage rates have moved to multi-decade highs will act as a deterrent to buying a home, and refinancing simply isn't profitable for virtually any homeowner at this point. The best thing that might be noted is that when rates eventually come down there will be some pent-up demand to be expressed, so lenders have that to look forward to, if nothing else.
If there is one encouraging thing for mortgage rates this week, it was that Federal Reserve Chairman Powell's speech at an economic symposium in Jackson Hole, Wyoming on Friday didn't upend the markets. It also didn't change the expectation that while there's a chance that the Fed may raise rates again this year, it probably won't happen at the next FOMC meeting, now just a few weeks away. That said, there was nothing in his words that lent any hope that interest rates or inflation would soon retreat and provide some relief to mortgage borrowers. Of course, lower rates would support greater housing demand, greater demand amid limited inventory to buy would pressure housing prices higher, lift housing inflation again, something that neither the Fed nor potential homebuyers would prefer to see at this point.
Lower mortgage rates aren't likely to be a problem this week, or at least not lower enough to change the picture much. The July JOLTS survey has a chance to move them for better or worse, as does the update for second quarter GDP. What would influence them the most comes after Freddie Mac has closed its survey for the week, so any impact from that release won't be reflected in the Freddie data for a bit yet. Underlying interest rates that influence mortgages have settled just a little over the last couple of days, but not much, so the best we can hope for is that mortgage rates will be roughly unchanged when Freddie Mac next reports on Thursday at noon. After six weeks of increases, rates just holding steady would be a welcome outcome.
