After a hopeful start to the year, as mortgage rates continued their retreat from 22-year highs, the housing market has again slowed and is barely simmering along in what should be the busiest time of the year. High mortgage rates are of course at the heart of the issue, but the availability of homes and the cost of them are also significant contributing factors.
30-year fixed mortgage rates reached their so-far 2024 low back in January, bottoming at an average of 6.60%, per Freddie Mac. The enthusiasm among potential homebuyers started to fade again as rates routinely stepped higher in February through early May, as the rise of 62 basis points to 7.22% over that time damped demand again. In recent weeks, though, the picture has improved somewhat; mortgage rates have retreated meaningfully from their early May peak, dropping back by a third of a percentage point.
While helpful, this is simply too small of a decline to revive the housing market in a meaningful way, and the spring home buying season will likely come to a quiet but expensive end this year. It may be that a more sluggish economy and cooling inflation will bring lower rates at some point, but by then it'll likely be mid-late summer or even early fall.
Sales of existing homes retreated by 0.7% in May, according to the National Association of Realtors, sliding to a 4.11 million annualized rate of sale. Sales have been declining in each of the last three months. Even with reduced demand, there is still enough to help home prices continue to escalate. A new record high was reached with May's $419,300 median price the new peak, 5.8% higher than the same month last year. Odds favor an even higher high for June, typically the peak seasonal month for existing home sale prices.
New residential housing construction fell 5.5% in May, with housing starts declining to a 1.277 million (annualized) rate of initiation. This was the slowest pace seen here since June 2020, when the pandemic's effects were upending everything. Starts of single-family homes retreated 5.2% to a 982,000 annualized pace; those for multi-family projects dropped back by 6,6% to a 295,000 annual rate. The outlook for starts in the months ahead also dimmed a bit, as permits to start construction dropped back by 3.8%, putting single-family permitting at a 949,000 pace (-2.9%) and a 437K rate (-5.6%) for multi-family properties. We'll get a look at May sales of newly constructed homes next Wednesday; the trend there has been a sluggish one at best, and there are few indications that an upside breakout for sales in May is to be expected.
Applications for mortgage credit improved by 0.9% in the week ending June 14, according to the Mortgage Bankers Association. Requests for funds to purchase homes rose by 1.6%, a second consecutive weekly increase, something that hasn't been seen since early March. There were somewhat fewer homeowners applying for loans to refinance existing mortgages, as this segment eased by 0.4% for the week, although this came after a 28.4% increase the week prior. Mortgage rates easing somewhat may help support a bit more refinance activity yet, most likely from folks looking to extract equity from their highly valued homes.
This week, we'll see updates on new home sales and pending (existing) home sales. However, all eyes will be on Friday's PCE prices report for May, since this is the indicator, the Fed relies on to track inflation. A flat CPI and modest core CPI increase in May suggests an improvement in the core PCE measure, which would be good news, and somewhat lower mortgage rates may be the result. That said, the PCE inflation update comes too late in the week to influence the average rates Freddie Mac will report on Thursday. Based upon how bond markets closed last week, we think that the average offered rate for a conforming 30-year FRM as reported by Freddie Thursday at noon will be essentially unchanged, with an equal chance of an increase or decrease of a few basis points.
30-year fixed mortgage rates reached their so-far 2024 low back in January, bottoming at an average of 6.60%, per Freddie Mac. The enthusiasm among potential homebuyers started to fade again as rates routinely stepped higher in February through early May, as the rise of 62 basis points to 7.22% over that time damped demand again. In recent weeks, though, the picture has improved somewhat; mortgage rates have retreated meaningfully from their early May peak, dropping back by a third of a percentage point.
While helpful, this is simply too small of a decline to revive the housing market in a meaningful way, and the spring home buying season will likely come to a quiet but expensive end this year. It may be that a more sluggish economy and cooling inflation will bring lower rates at some point, but by then it'll likely be mid-late summer or even early fall.
Sales of existing homes retreated by 0.7% in May, according to the National Association of Realtors, sliding to a 4.11 million annualized rate of sale. Sales have been declining in each of the last three months. Even with reduced demand, there is still enough to help home prices continue to escalate. A new record high was reached with May's $419,300 median price the new peak, 5.8% higher than the same month last year. Odds favor an even higher high for June, typically the peak seasonal month for existing home sale prices.
New residential housing construction fell 5.5% in May, with housing starts declining to a 1.277 million (annualized) rate of initiation. This was the slowest pace seen here since June 2020, when the pandemic's effects were upending everything. Starts of single-family homes retreated 5.2% to a 982,000 annualized pace; those for multi-family projects dropped back by 6,6% to a 295,000 annual rate. The outlook for starts in the months ahead also dimmed a bit, as permits to start construction dropped back by 3.8%, putting single-family permitting at a 949,000 pace (-2.9%) and a 437K rate (-5.6%) for multi-family properties. We'll get a look at May sales of newly constructed homes next Wednesday; the trend there has been a sluggish one at best, and there are few indications that an upside breakout for sales in May is to be expected.
Applications for mortgage credit improved by 0.9% in the week ending June 14, according to the Mortgage Bankers Association. Requests for funds to purchase homes rose by 1.6%, a second consecutive weekly increase, something that hasn't been seen since early March. There were somewhat fewer homeowners applying for loans to refinance existing mortgages, as this segment eased by 0.4% for the week, although this came after a 28.4% increase the week prior. Mortgage rates easing somewhat may help support a bit more refinance activity yet, most likely from folks looking to extract equity from their highly valued homes.
This week, we'll see updates on new home sales and pending (existing) home sales. However, all eyes will be on Friday's PCE prices report for May, since this is the indicator, the Fed relies on to track inflation. A flat CPI and modest core CPI increase in May suggests an improvement in the core PCE measure, which would be good news, and somewhat lower mortgage rates may be the result. That said, the PCE inflation update comes too late in the week to influence the average rates Freddie Mac will report on Thursday. Based upon how bond markets closed last week, we think that the average offered rate for a conforming 30-year FRM as reported by Freddie Thursday at noon will be essentially unchanged, with an equal chance of an increase or decrease of a few basis points.
