The typical buyer’s housing payment was $2,588 during the four weeks ending Aug. 11, nearly $250 below April’s all-time high and up just 1 percent year-over-year – the smallest increase in five years, according to a new report from Redfin.
There are also a few other encouraging signs for buyers, Redin said: The total number of homes for sale is up nearly 20 percent year-over-year, and a growing share of inventory is growing stale, allowing some buyers the chance to negotiate. Additionally, less than 30 percent of homes are selling above list price, down from 35 percent a year ago.
Despite declining costs and improving inventory, pending home sales have yet to improve. Pending sales are down 5.1 percent year-over-year, the biggest decline since November (except the prior four-week period, when there was a 6.2 percent decline).
There are several reasons buyers aren’t jumping at the chance to take advantage of falling mortgage rates. Although home prices have come down from their July peak, they’re still near record highs. Additionally, some prospective buyers are sitting on the sidelines because of economic and political uncertainty around the presidential election, whether mortgage rates will fall more and whether the U.S. is going to enter an official recession, Redfin said.
There are a few signs that more house hunters are starting the homebuying process. Mortgage-purchase applications are up 3 percent week-over-week on a seasonally adjusted basis. And Redfin’s Homebuyer Demand Index is down 10 percent year-over-year, but that’s the smallest decline since April.
“I was hoping more buyers would emerge when mortgage rates started declining. And while house hunting has picked up a bit, the increase isn’t all that significant,” Brynn Rea, a Redfin Premier agent in Spokane, Wash., said in a release. “Budgets are typically the most important factor for buyers, and homes are still really expensive for a lot of people. A lot of buyers are waiting to see if mortgage rates fall more if and when the Fed cuts interest rates, and to see what happens with the economy and the election later in the year.”
This week’s comsumer price index report shows inflation continues to soften, reinforcing the expectation the Fed will start cutting interest rates in September, though it’s unclear by how much. Markets have priced in expectations of aggressive rate cuts. If the Fed doesn’t match those expectations, rates could rise a bit, but if they cut as quickly as markets are hoping – or even faster – mortgage rates have more room to fall. And if falling rates drive up demand, that could push up home prices, according to Redfin.