Rates Volatility Stalls Housing Revival

by | Oct 28, 2024 | Economic Perspectives

Since mid-September, 10-year yields have risen from 3.6% to over 4.2%. The intensifying war in the Middle East, resilient incoming domestic data, and market repricing of potentially more inflationary policies under a second term for President Trump, are all likely contributors to this move. As expected, the 30-year fixed mortgage rate has followed this shift higher: having dipped o 6.08% in mid-September, bit bounced back to 6.54% by the third week of October. The increase in mortgage rates has had an immediate effect on mortgage demand, especially on refinancing activity. Refinancing accounted for about 55% of all mortgage applications in the third week of September but that share has declined nearly ten percentage points since (Figure 1, page 2). The scope for refinancing activity this cycle was always going to be limited given the majority of homeowners have secured mortgages below 5.0%; any move higher in rates further dims this potential.

Read our recent blog An Unusual Mortgage Refinancing Cycle Ahead for a fuller discussion of the mortgage/housing sector dynamics in the US.

Existing home sales remain exceedingly depressed, in fact making a new post-GFC low in September. At 3.84 million annualized, existing home sales continue to undershoot even the Covid-era lows. Year-over-year comparisons do not appear too negative, but that is only because sales already underwent a violent correction lower in 2022 as the Fed began raising interest rates so the basis for comparison is already depressed. Meanwhile, supply is steadily improving as some sellers no longer can delay a move. The number of existing homes available for sales is 24.5% higher than a year ago and stands at 4.3 months’ worth of sales. Apart from a single month in the early days of the pandemic, this is the highest inventory level since June 2019. Unsurprisingly, this has helped tame price increases. The median price of an existing single family home rose a moderate 2.9% y/y.

New home sales picked up 4.1% m/m in September, but it remains to be seen whether the improvement lasts given the rates volatility. Sales were 6.3% higher than a year ago while the median price was unchanged. Homebuilders have curtailed construction this year to better manage inventory, with reasonable success. Current inventory sits at 7.6 months’ worth of sales, the low end of the one-year range, well below 2022 highs of around 10% but above 2018-19 levels. Notably, the number of completed homes available for sale is now the highest since September 2009.

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