A similar drop in mortgage rates a year ago to even lower rates didn’t turn up sales volume either – on the contrary.
By Wolf Richter for WOLF STREET.
The dream is, or was, that mortgage rates dropped enough in November and December to push potential home buyers out of their buyers’ strike and to sally forth and start bidding wars all over again, so that we could amuse ourselves with headlines touting the new craze, while millennials and GenZers are trampling all over each other to outbid each other and to drive up prices to make each other miserable, so that sellers could maximize their gains. The media just loves touting this kind of stuff.
And mortgage rates dropped a whole bunch, and new listings are now suddenly showing up in larger numbers than a year ago, but buyers not so much. Clearly, mortgage rates haven’t dropped to the magic level yet, folks are waiting for them to drop further, and the market remains frozen.
Pending home sales – a forward-looking indicator of sales of existing homes, based on contract signings – in November were unchanged from October, and both occupy the second-lowest historic low, after the historic low in April 2020, according to the national Association of Realtors today. So this is not exactly what people figured in their wildest dreams (data via YCharts):
The NAR defines a “pending sale” as a transaction where the contract was signed but it has not yet closed. At this point, the deal can still fall through for a variety of reasons. If all goes well, the sale usually closes “within one or two months of signing.”
The index value was set at 100 for contract signings in 2001. Today’s value of 71.6 is down 28.4% from the index average in 2001. Compared to the prior Novembers, the index value of contract signings plunged…
By 5% from the already collapsed levels of November 2022
By 40% from November 2021
By 43% from November 2020
By 34% from November 2019.
Applications for mortgages to purchase a home dipped in the latest week, after inching up a few weeks in a row, according to the latest weekly data released on December 20 by the Mortgage Bankers Association.
And these purchase mortgage applications remain at totally collapsed levels, down by 18% from the already collapsed levels in the same week in 2022, down by 48% from the same week in 2021, and down by 43% from the same week in 2019.
Mortgage rates have dropped a lot, but not nearly enough to hit that magic level that restarts the whole zoo all over again, apparently.
The average 30-year fixed mortgage rate ticked down to 6.61% in the latest reporting week, from 6.67% in the prior week, according to Freddie Mac today. Today’s average is down by 118 basis points from the peak of 7.79% in the week at the end of October.
Ironically, there was a similar drop (101 basis points) a year ago, to even lower rates of just above 6%, and it didn’t turn up volume either – on the contrary.
The issue with the frozen market for existing homes isn’t the mortgage rate – it’s the price of the home that people want to buy. Prices have shot sky-high over the past few years, from already very high levels, and the solution is lower prices. A continued buyers’ strike goes a long way to making that happen. And in some markets, that’s already happening.
Homebuilders who have to sell their homes and cannot sit out this market have figured this out. They’re building smaller homes with fewer amenities to get prices down, and as their incentive to induce people to buy those smaller and cheaper homes, they’re also buying down mortgage rates which takes the place of other incentives they would normally offer.
And so sales of new houses have not collapsed to historic lows – unlike existing homes – but are at the muddling-through levels of the years before the pandemic. Homeowners who want to sell should keep an eye on the market for new houses because that’s where their competition is, and that competition is getting fairly aggressive to try to sell new homes.
Enjoy reading WOLF STREET and want to support it? You can donate. I appreciate it immensely. Click on the beer and iced-tea mug to find out how:
Would you like to be notified via email when WOLF STREET publishes a new article? Sign up here.
The post Mortgage Rates Dropped a Lot but Clearly Not to the Magic Level. Buyers’ Strike Continues. Issue Is Price appeared first on Energy News Beat.
Energy News Beat