U.S. Housing Report: Affordability Improves with Lower Mortgage Rates, but Sales Stall as Prices Remain High

Despite some market improvements for buyers, sales remain sluggish. Home prices have decreased for two consecutive months, mortgage rates are near a one-and-a-half-year low, and the number of homes for sale has increased by over 20% year-over-year (YoY) in August. So why aren’t sales picking up?

Owen Berkowitz of Christie’s International Real Estate Group explains, “We are now years into what I call a normal interest rate environment; the reality is now baked into the psyche of sellers, and as with all changes, it takes time for the dynamics to rebalance, and we are seeing that happen.”

According to Freddie Mac, the 30-year fixed rate mortgage average in the U.S. was 7.06% in May, falling to 6.92% in June and 6.85% in July, before reaching 6.21% in September (to visualize, edit the chart’s frequency to “monthly” and make dates 09/01/23 to 09/01/24). The question is: how will these declining rates impact the housing market?

On September 19th, the National Association of Realtors (NAR) reported that existing home sales fell in August, with three out of four major U.S. regions seeing declines, while the Midwest remained unchanged. On a YoY basis, sales dropped in three regions except for the Northeast. 

The report highlighted a 2.5% month-over-month decline in existing home sales and a 4.2% YoY drop. According to NAR Chief Economist Lawrence Yun, “Home sales were disappointing again in August, but the recent development of lower mortgage rates coupled with increasing inventory is a powerful combination that will provide the environment for sales to move higher in future months.” But what must happen for sales to increase?

“For buyers who are financially ready and find a suitable property, now could be a strategic time to act. The option to refinance in the future as rates drop offers a clear advantage, providing today’s buyers with a first-mover edge,” added Antin. “Those waiting until 2025 for lower rates, post-election clarity, or greater economic certainty may face a more competitive and potentially pricier market as increased buyer demand is expected.”

NAR’s data shows that seasonally adjusted existing home sales in August hit 3.86 million, while non-seasonally adjusted figures from January through August totaled 2.74 million closed transactions. The NAR data suggests that despite slight rate decreases in June and July, U.S. home sales remain low due to high prices and affordability constraints, with buyers waiting for conditions to improve. Does this mean the market is potentially on track to have fewer sales?

“Buyers have been hearing promises of reduced mortgage interest rates for the past year, but rates have only crept down incrementally since the beginning of 2024,” said Douglas Wagner, Director of Brokerage Services at BOND New York. “Only in the last few weeks have rates seemed dramatically improved, as lenders have lowered rates in reaction to 10-year treasury yields below 4% and [due to] the Fed’s rate cut decision on 9/18.”

According to NAR, total housing inventory at the end of August was 1.35 million units, up 0.7% from the previous month and 22.7% YoY. The unsold inventory index stands at 4.2 months, compared to 3.3 months the year prior. While inventory is growing, it remains well below pre-COVID levels. This gradual rise in supply may lead to a slow decline in home prices.

“A decrease in the Federal Reserve’s interest rates generally leads to lower mortgage rates. Lower borrowing costs make home financing more affordable for potential buyers,” said Maria Belen Avellaneda, Associate Broker at Keller Williams NYC. “This can stimulate demand for residential real estate as monthly mortgage payments become less expensive, allowing more people to qualify for loans or afford higher-priced homes.”

NAR also reported that the median existing-home sold price in August was just under $417,000, up 3.1% YoY, with all four major U.S. regions posting home price increases. Price increases were highest in the Northeast (7.7%), followed by the Midwest (3.8%), the West (2.2%), and the South (1.6%).

First-time homebuyers accounted for only 26% of all home sales in August, matching the record low from November 2021. Cash sales made up 26% of transactions, and distressed sales, defined by foreclosures and short sales, were basically non-existent at 1%. So, the U.S. housing market is facing challenges on several fronts. What does NAR data suggest about national home values and sales trends for the rest of this year and into 2025?

According to Zillow’s Home Value and Home Sales Forecast released on September 17th, home value growth and existing home sales will see modest increases “albeit at still-low levels relative to historic norms.” Zillow expects home values will rise by 2.1% by the end of the year, followed by a 1.4% increase through August 2025. National home values are predicted to increase by 1.5% from August 2024 to August 2025. In terms of sales, Zillow projects 4.1 million existing home sales this year, up 0.4% from last year’s three-decade low, with an increase to 4.3 million in 2025, reflecting a 5.3% improvement.

The Zillow report suggests that home transactions may remain lower this year compared to last, unless buyers take advantage of the slightly lower mortgage rates and expanded inventory, which has improved affordability. Despite this, high home prices could dampen listing activity and sales. However, Zillow states that “the number of homes on the market is up 22% from last year, putting some downward pressure on prices. For buyers, this means there are more options and bargaining power.”

“In September, new listings have started to build up (over 700 new listings in Manhattan since the beginning of the month), but it’s happening slowly,” said Wagner. “Some sellers are also waiting to see what happens with interest rates before listing their homes for sale, because they only want to go to market when it’s clear there will be lots of buyers and possible competitive bidding.”

Referencing Freddie Mac’s active listing count chart, which is based on Realtor.com data, active listings surged to 909,344 in August 2024, an approximate 35% YoY increase (to visualize, edit the chart’s frequency to “monthly” and make dates 08/01/23 to 08/01/24). A deeper examination (edit the dates to 07/01/16 to 08/01/24) shows that although inventory levels are the highest since May 2020, they remain significantly below pre-COVID levels. According to Zillow’s national home value forecast, almost every region in the U.S. rose dramatically following the pandemic. Now, with inventory levels reaching a four-year high, some downward pressure on home prices is expected.

A September 12th Redfin report indicates that while declining mortgage rates have made house payments more affordable, pending home sales remain stagnant. Buyers are waiting for further rate drops before committing to purchases. Despite the Fed’s recent 50-basis-point rate cut, which brought mortgage rates down to their lowest since February 2023, the median U.S. home-sale price is still near an all-time high at $388,085, with sales down nearly 30% from pre-pandemic levels. With new listings slow to rise and inventory tight in many parts of the country, the housing market’s growth remains flat.

Mortgage rates, though lower than their October 2023 peak of 8.03%, are climbing again. According to Mortgage News Daily, on September 17th, a 30-year fixed mortgage rate was 6.11%, increasing to 6.20% by September 23rd. While these rates are still lower than the 7.39% recorded a year ago, the rising trend raises concerns about the future impact on home sales. 

“The homeowners with sub-4% interest rates have a hard time finding desirable upgrades from their current situation,” said Yan Gladkov, Licensed Real Estate Salesperson at Keller Williams NYC. “They tend to reserve to becoming a landlord and look for a rental themselves in an adjacent nearby market, e.g., I had an owner of a coop in Union Square rent her one bedroom for $6,000 whilst looking for a $4,000 one bedroom in downtown Brooklyn as a tenant. She is not ready to sell, yet.”

The decrease in mortgage rates hasn’t caused a considerable surge in homebuyer activity or pending home sales. Data from Mortgage News Daily shows that the number of buyers submitting mortgage applications has fallen to 6.09%. Even with lower rates, the purchase index remains flat, indicating that the dip in rates has yet to draw new buyers into the market.

“As financing becomes more accessible due to lower rates, there is typically a surge in home buying activity. Homebuyers often take advantage of lower mortgage rates to lock in better deals,” said Avellaneda. “This could lead to increased demand, especially in suburban and urban areas, driving home prices upward only if the supply of homes doesn’t keep up with demand.”

According to the Leading Indicators section of the Redfin report, as of the week ending September 6th, mortgage-purchase applications increased 2% compared to the previous week, but they remain down 3% YoY. That being said, as of the week ending September 8th, the homebuyer demand index is up 5% MoM and near its highest level since May, though still down 7% YoY, implying that closed home sales will likely remain low in the coming months.

“Discretionary sellers are unlikely to list their homes while interest rates are still nearly twice as high as some of the lowest rates from pre-2022. Sellers who might be downsizing would end up paying about the same amount for less space, and anyone looking to expand their living quarters would pay more for the acquisition and also more in interest to own a new home, so homeowners with very low mortgage interest are mostly staying put,” adds Wagner. 

Redfin’s data on 400+ U.S. metros shows the median sale price is $388,085, a 3.7% YoY increase and just shy of the all-time high set during the four weeks ending July 7th. The median asking price is $397,475, up 5.4% YoY. The average monthly housing payment has dropped 1.3% to $2,558 with a 6.35% mortgage, marking the second-largest decrease since May 2020. Meanwhile, new listings have risen 4.6% YoY to 87,557, and active listings have increased by 16.7% YoY, though pending sales are down 7.8%. 

Months of supply is 3.8, an increase of 0.8% YoY, with four to five months considered balanced and anything lower indicating a seller’s market. Median days on the market are at 36 days, a three-year high and up by 5 days YoY. The share of homes with a price drop is 6.6%, rising by 1.2 percentage points YoY, while the average sale-to-list-price ratio is 99%, down 0.5 points YoY.

“A large portion of homeowners have mortgage rates that are far below what is currently available. This rate disparity has created a ‘lock-in effect’ where homeowners are reluctant to sell, as purchasing a new home would mean taking on a mortgage with a much higher rate,” said Antin. “For many, this difference is either financially prohibitive or undesirable. Additionally, baby boomers, who own a substantial portion of larger homes, often prefer to age in place.”

The U.S. housing market is navigating a delicate balance. On the one hand, lower mortgage rates and increased inventory offer buyers more choices and bargaining power. On the other hand, high home prices and affordability challenges are preventing a substantial recovery in sales. Experts anticipate a more competitive market in 2025, as rates are expected to continue declining. Meanwhile, first-time buyers remain sidelined due to record-low participation, and sellers face their own dilemmas, with many choosing to hold off until conditions further improve. The next few months will determine if the market can stabilize or if these patterns of uncertainty will persist into the next year.

“We are in an area where we see prices remaining strong, so reductions are more outliers than the norm. The stock market is booming,” said Berkowitz. “The overall economy has been improving and people are spending! The housing market reflects aspirations, and there is never a shortage of that. ‘Hope’ and ‘Home’ are just one letter apart.”