If mortgage rates remain above 6.5%, ‘immediate recovery in housing demand is unlikely’
![If mortgage rates remain above 6.5%, 'immediate recovery in housing demand is unlikely'](https://news7h.com/wp-content/uploads/2024/07/GettyImages-1179761508-e1720199621789-780x470.jpg)
The housing world is in turmoil. Last year, Existing Home Sales plummeted to its lowest level in nearly three decades as no one sold or bought homes. That’s a product of the lockdown effect and dwindling demand; previously it was because mortgage interest rate skyrocketed from historic lows during the pandemic, and the latter was due to soaring home prices and borrowing costs.
There were expectations that this year would be better, and in some ways it has been. But the housing market remains stuck, and “if mortgage rates remain above 6.5% this year—as we expect—then the likelihood of an imminent recovery is slim,” said Thomas Ryan of Capital Economics. Written earlier this week, specifically referring to mortgage applications.
Last month, mortgage rates fell below 7%, leading to an increase in mortgage applications to buy a home, but “that increase is very small in the context of mortgage applications falling over the past three years,” the economist continued.
Applications are just 12% above the 28-year low reached last October, when mortgage rates hit their highest level in more than two decades. And since lower mortgage rates have fueled this latest boom and are trending up again, it may not last much longer. Average 30-year fixed rate weekly mortgage interest rate is 6.95%; daily mortgage interest rate higher, reaching 7.03%.
In another sign of weakening demand amid severe affordability, Pending home sale fell 2.1% in May, an all-time low, and on a year-over-year basis, every region across the country recorded a decline. Redfin recently said Pending home sales fell 5% in the four weeks ended June 30, the biggest decline in months. Separately, but also a sign of weakening demand, Redfin’s homebuyer demand index, which measures requests for tours and other home-buying services from Redfin agents, fell 17% from the same period last year.
Then there is Existing Home Salesdown 0.7% in May from the previous month and down 2.8% from a year earlier—or new home for salefell sharply by 11.3% in the same month. Meanwhile, house prices continued to rise. all time highFor its part, Capital Economics sees existing home sales remaining “extremely weak over the next few months.”
The key to boosting activity in the housing world, at least in the short term, is lower mortgage rates. As Capital Economics points out, they don’t see that happening unless rates fall below 6.5%. Robert Reffkin, co-founder and CEO of the real estate giant Compass, recently said“I think 6.5% is good enough… but the ideal number is 5.9999,” he continued. “That would be a marketing ploy and would tell the world that mortgage rates are at a level where they should be buying property.”
This could also be the magic mortgage rate for people who want to sell their homes. Capital Economics puts the average mortgage rate at nearly 4%, which is why many people are reluctant to let their mortgages go at 7% or higher. But they might reconsider if it were closer to 6%, or even lower. Inventory has been rising, however; as of the week ending June 29, new home sales were up 10.8% year over year, and active inventory, or all homes for sale, was up 38.1% year over year. based on Realtor.com website.
But the problem is, some argue, that when mortgage rates drop, sellers could flock to the market and home prices would skyrocket—not good for anyone looking to buy a home. Barbara Corcoran, self-made real estate millionaire and Shark tank star, in march speak“If interest rates fall another percentage point… prices will skyrocket,” she said, not for the first time.
On the other hand, Redfin’s head of economic research, Chen Zhao, recently said“The drop in mortgage rates will bring both buyers and sellers back into the market, which could accelerate price increases or drag them back depending on which side returns with more force. If sellers return faster, prices will likely cool, but if buyers return faster, prices will likely rise.”
Either way, it all depends on the Federal Reserve cutting interest rates; the central bank just wrote in a cut this year, so let’s see how that will affect mortgage rates.