September 26, 2024
Recent data from the National Association of REALTORS® suggests that a minor improvement in housing affordability could prompt more buyers to enter the market.
In August, pending home sales edged up slightly, supported by a reduction in mortgage rates, which provided some incentive to potential buyers. Despite this, challenges like elevated home prices persist, and many buyers may still be waiting for rates to drop further, according to various surveys.
The NAR’s Pending Home Sales Index, which forecasts home sales based on contract activity, saw a modest 0.6% rise last month. Yet, contract signings were still 3% lower compared to the same period last year.
“The modest increase in contract signings last month signifies a slight improvement in housing affordability, mainly due to mortgage rates falling to 6.5% in August,” comments Lawrence Yun, NAR’s Chief Economist. “However, the overall number of contract signings remains low by historical standards, even as home prices continue to reach new peaks.”
The market remains highly competitive: 20% of properties sold for above the listing price in August, according to the REALTORS® Confidence Index Survey. Furthermore, the median price for existing homes rose to $416,700 in August, a 3.1% increase year-over-year. This narrows the gap between existing and new-home prices, the latter of which had a median of $420,600. To entice buyers, home builders are offering pricing incentives and increasing inventory for entry-level homes. Sales of new homes priced under $300,000 accounted for 18% of the market in August, up from 12% the previous year, as reported by the National Association of Home Builders.
Buyers Keeping a Close Eye on Mortgage Rates
Although lower mortgage rates appear to be nudging buyers back into the market, they remain cautious. With rates at a two-year low, mortgage applications have increased slightly—up 2% compared to the same time last year, according to the Mortgage Bankers Association. The average 30-year fixed-rate mortgage fell to 6.09% last week, a decrease of more than 150 basis points from a year ago.
Many buyers are optimistic about further rate reductions: around 40% expect mortgage rates to drop within the next year, based on Fannie Mae’s Home Purchase Sentiment Index.
While the Federal Reserve does not directly set mortgage rates, expectations for more cuts to short-term interest rates have pushed long-term mortgage rates close to 6% as of late September, says Yun. This means that for a typical $300,000 loan, borrowers could now save around $300 per month compared to when rates were higher a few months ago.
The combination of lower rates and an increase in available homes—up 23% year-over-year in August—could present more opportunities for buyers in the near future, Yun mentioned in the recent NAR report.
Regional Trends
Contract signings increased in the Midwest, South, and West last month, while the Northeast saw a decline. Despite the dip in the Northeast, Yun notes that this region has generally outperformed others in recent months in terms of home sales and price growth. The median existing-home price in the Northeast rose nearly 8% year-over-year in August, reaching $503,200, according to NAR.
However, “contract signings rose in both the most affordable and the priciest regions—the Midwest and the West—due to nationwide declines in mortgage rates,” Yun says. “We expect to see further improvements in housing affordability.”