As buyers wait for even lower mortgage rates, lower prices, and higher wages. Mortgage rates already dropped to 6.15% from 7.9%, but that didn’t help at all.
By Wolf Richter for WOLF STREET.
We’ve been saying this for many months, and now Fannie Mae’s Economic & Strategic Research group is saying the same thing – the Buyers’ Strike is expected to continue despite much lower mortgage rates and a very sharp increase in active listings — because prices are too high:
“Although mortgage rates have fallen considerably in recent weeks, we’ve not seen evidence of a corresponding increase in loan application activity, nor has there been an improvement in consumer homebuying sentiment,” Fannie Mae said in the report today, lowering its forecast.
“We think it’s likely that many would-be borrowers are waiting for affordability to improve even further, and that some may be anticipating additional declines in mortgage rates given expectations that the Fed will lower the federal funds target rate,” Fannie Mae said.
And so, potential buyers are waiting for even lower mortgage rates.
“Others may be waiting for household incomes to improve further to offset some of the recent home price growth, or they may be thinking that future supply growth will ease affordability.”
The last phrase means lower prices, because prices are too high, and so potential buyers are waiting for prices to come down.
“Regardless of the lever, we expect affordability to remain the primary constraint on housing activity for the foreseeable future, and we now think full-year 2024 will produce the fewest existing home sales since 1995,” Fannie Mae said.
And mortgage rates have already come down a whole lot. Except for a three-month period between mid-January through mid-April, mortgage rates have zigzagged lower incessantly since November 2023.
According to the Mortgage Bankers Association today, the average 30-year fixed rate has dropped to 6.15% in the latest reporting week, that’s down by over 1.6 percentage points from the rates 10 months ago.
So Mortgage rates have come down a lot, paralleling the moves in the 10-year Treasury yield, in anticipation of a whole bunch of rate cuts by the Fed. With so many rate cuts already baked in, mortgage rates may not fall a lot more.
Fannie Mae today estimated that the 30-year fixed mortgage rate will “average” 5.9% next year, and it has already fallen to 6.15%, from 7.9% in November last year:
“Despite a significant decline in mortgage rates and improved supply in some parts of the country, existing home sales are not expected to pick up meaningfully through the remainder of 2024, with the annual pace now forecast to be the slowest since 1995,” Fannie Mae said.
Based on its own data, Fannie Mae expects annual sales of existing homes to fall another 0.3% in 2024 from 2023.
Here are annual sales of existing homes through 2023, as reported by the National Association of Realtors, which appears to differ slightly from Fannie Mae’s data. Year-to-date through July, the NAR’s metric is down by 2.0% from the same period last year, which had already been the lowest since 1995 (historic data via YCharts):
“Recent data, including softness in pending home sales [we covered their amazing plunge to record lows here] and purchase mortgage applications, continue to suggest limited home-purchase demand at current affordability levels,” Fannie Mae said.
So, these applications for mortgages to purchase a home have collapsed over the past year to record lows in the data and have hovered near those lows ever since. In the latest reporting week, they ticked up a tad from the prior weeks, but are still down by 46% from the same week in 2019 and by 54% from the same week in 2021. Those multi-year declines have been roughly the same over the past six months:
Demand for mortgages has collapsed, despite the much lower mortgage rates, because prices are too high. And people are waiting for even lower mortgage rates and lower prices, and for their incomes to rise while they wait for mortgage rates and lower prices.
In case you missed it: The Most Splendid Housing Bubbles in America: Price Declines Spread to 25 Metros of Top 28, with 19 Below 2022 Peaks. 3 Set New Highs.
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MW: Bond market gets a Federal Reserve wake-up call after pricing in a recession…
always tell people when they are looking at my property I have for sale
Price, Terms, Interest rate – pick 2
want Price(discount) then term is CASH
want better interest rate and TERMS then pay full price
just sold property at full price – they got better terms and interest rate
still getting better interest than bank CD and it’s guaranteed given the 35% down payment(I’ll gladly take back property for non-payment)
joedidee wrote: ‘Price, Terms, Interest rate – pick 2’
+1000
Well said. I’m stealing that one.
Music to my ears
same – now that I’m bit flush after selling property couple weeks ago
need another fixer to add to my rental portfolio
multi-unit still out of control price wise
“We think it’s likely that many would-be borrowers are waiting for affordability to improve even further, and that some may be anticipating additional declines in mortgage rates given expectations that the Fed will lower the federal funds’ target rate,” Fannie Mae said”
With a couple of more FED rate cuts this and next year, those mortgage rates will entice people back in and accept buying million-dollar crapshack is the norm, as long as they can squeeze into that monthly mortgage, even if they hit a35%+ DTI, at least that’s my prediction for the SoCal market. Hopefully, I am dead wrong about this, time will tell
Those rate cuts whereof you speak ARE ALREADY PRICED INTO MORTGAGE RATES as you can see from the chart.
One more time, and louder for those in the back…
Wolf, what are your thoughts regarding the spread between 10 yr Treasury rates and 30 yr mortgage rates?
The spread was still at about 2.5 percentage points on Thurs, down from north of 3 pts sometimes within the past couple of years, but still significantly higher than the spread’s sub 2 pt historical average (1.7 pts?).
Based on that, it seems there could still be room for the spread (and therefore mortgage rates) to come down a bit further, without higher Fed rate cuts than those already baked in, no? If the spread came down another .25 to .5 pts (landing still above historical average), we’ve got average mortgage rates starting with 5.xx%, and people with optimal credit situations and/or any amount of discount points south of 5.5%, which seem like potentially significant psychological thresholds (below the historical average mortgage rate).
You seem bearish on all of this, though, and I always like getting different perspectives.
“You seem bearish on all of this, though…”
No, I’m hopeful — and we’re seeing the signs of it — that these ridiculous home prices are finally coming down. These ridiculous home prices are a scourge on the real economy. They suck huge resources out of the real economy into the financialization sector. The best thing that can happen to the US economy long-term (not short term) is a significant (relative to wages) decline in home prices. So I’m rather bullish long-term for the economy, I’d say. But if I see QE and ZIRP again, I will re-turn bearish on the economy because that stuff tears up an economy.
In terms of the spread…
The spread narrowed during the time when the Fed bought MBS — which is why the Fed bought MBS. The Fed is now shedding MBS and has the intention of getting rid of them entirely. It removed the cap of the MBS roll-off. So as refis surge (they tripled from the low levels late last year) and as people sell their homes to buy another one, the MBS roll-off will accelerate from the low levels (and has already done so). So I think the spread will be somewhat wider on average than during QE times.
But mortgage rates aren’t as volatile as the 10-year Treasury yield so the spread between them varies widely (which creates the crazy chart below). This has the effect that if the 10-year yield rises sharply, mortgage rates might follow more slowly, and the spread widens.
The chart below shows the rate difference between the 10-year yield and the 30-year-fixed mortgage rate. You can see how the spread narrowed on average in 2009 when the Fed started buying MBS, and it stayed somewhat narrower on average than between 1998 and 2008, though during the MBS mania in 2004-2006, the spread was also very narrow. Another period of narrow spread was in the 1990s, and perhaps this was caused by the “bond vigilantes” that refused to buy longer-dated Treasury securities after the decades-long bloodbath through 1982, and longer Treasury yields remained much higher, but mortgage rates didn’t track them all the way up.
buyers in our market are asking(and getting) upwards of 8% to buy down rates – so you don’t see the price discount
my wife sold her mom’s home in July and buyer paid full price but got 8% discount to buy down interest rate/pay for appraisal/etc.
Wolf,
Wages need to rise. Dollar debasement of 25% since 2020. You won’t see a drop in prices, especially if one of these yahoo’s gives away 25k to first time buyers.
Affordability — where’s the average slob gonna come up with a 10% down payment on a $600k house?
Median home price is $412,300 — sure, there’s a wide range of potential homes available, but the lower range is still out of reach for someone making average income of apparently $80k’ish?
With savings rate way down and cumulative inflation still killing the average person, pretending people are excited about mortgages dropping is plain stupid.
This reset or recalibration will take years, because, home prices have to get crushed, rates need to stay low and people have to save money and keep jobs — this isn’t exactly an easy situation going forward — a lot of things have to line up for a soft landing to materialize, versus a crash landing, where a lot of things fall apart.
Time is a huge constraint in this affordability dynamic.
Wolf’s chart seems to show that house sales have had a crash landing. Sales back to 1995 is mind-boggling given the massive population growth over the last 30 years. There was a time when housing construction defined the economy in many areas. If it were still the case, we’d be in a pretty serious recession.
Buy doing endless rounds of gargantuan QEs, FED inspired almost a new cult of “homes are for buying, not selling”. I see many people repeatedly buying and never selling homes. When they need to move, they are renting the existing one and buying a new one, because they have no doubt that any home will appreciate 5-10% in average each year, as it did so for last 15 years. Any price softening was met a new round of ever increasing QE by FED, pushing the prices even more higher every time. The sentiment is that this cycle will go in the same manner forever.
Fannie mae and Freddie mac has alsobig responsibility for affordability crisis, by continuously increasing the credit limit, finally over 1M in the pandemic, which was totally ridiculous. Because of this stupidity, FED cannot risk lowering the house prices, as a decline will endanger the viability two and many mortgage BS under the guarantee of govt.
Pretty fine summary.
It *is* telling/scary that the speculative contingent of home buyers (ZIRP-built from 2001 to 2022, with rare departures) basically rode out/white knuckled through the 2022-today tightening cycle (“The Pivot is Coming!, The Pivot is Coming!”).
If it had been me, I would have been on the first train after the start of unZIRP – not knowing when fellow speculators were likely to panic.
The 2022-today lack of for-sale inventory is the great mystery of the tightening cycle.
gladly put down 20-30% if they’d approve me
only have 823 mid fico
of course I’m self employed so they throw me out window
Amen to this and sadly this is the new normal…great for existing asset owners, especially the one that got in early or got the timing right…sucks for the rest paying steak price but fighting over scraps..
“where’s the average slob gonna come up with a 10% down payment on a $600k house?”
I’ll agree 600k for an average house is symptomatic of bubble prices – but is 60k down really that unreasonable?
Considering that historically, it was difficult for the buying millions to come up with $15k-30k down payments…yes, a $60k cash down payment would *seem* to present issues.
Yet another mystery revolving around the vastly dysfunctional US housing market (Son of ZIRP) – where are the down payments coming from? Why is the so little for-sale inventory? Does a $150k house in 2000 *really* cost $450k to build in 2024? etc.
Yes, yes it is. I have had 3 years of a good paying job $80k+ the amount taxes I paid each year was someones yearly income, others that made more than me decided to not defer much in their 401k in more years with higher pay was paying almost $30k. Our income is W2 and not investment income, so we got Fd.
You know what’s funny…the average home price in SoCal over $1M, something decent will be around $1.3- $1.5M….even 20% on the low end is around $240K to $300K. With that, you’re looking at insane monthly mortgage alone….Even if I put $700K, monthly still comes out more than what you can rent comparable.
I guess people around here have $250K or more just eager to buy…these price doesn’t seem to discourage many from buying…just insane…
I suspect it’s the $600k that is unreasonable. The “slob” may be signing up for a lifetime of indentured servitude trying to pay off an overpriced shack.
The good news is that baby boomers like myself are approaching 80 and will be downsizing to retirement facilities about that time. They will have to sell and use the money to fund nicer living accommodations and their kids will inherit what is left over. I live in L A and my neighbors are generally retired people with homes that are 10 times what they paid for them.
It’s great they are laying out a realistic view, hopefully some sellers agents will take note. I think they also miss a very important facet of the slowdown. We have done the getting outbid multiple offers dance and suddenly there is so much inventory we feel like we can wait to overpay for a 9/10 or a 10/10 house instead of overpaying for a 5/10 like most people did the last several years.
The VA is offering financing at rates below 6% as we speak. Buyer are coming out of the woodwork, buying mostly condos which they can afford at these rates. We are busy as hell with no letup. Prices of condos are still reasonable. It’s the only game in town, at least for now.
HOA fees are ridiculous. Rent and let the owner pick up all the costs. Let them hold the bag when the market downturn happens. Wouldn’t it be nice to get rent reductions to keep you in the unit?
Having a HOA means you pay both a mortgage *and* rent to a landlord.
Agreed – HOA fees *are*, and have been, absurd for a number of years.
If not the full equivalent of, say, a 2 bedroom rental…idiotically close (50%-60% of a 2bd rental in too many cases).
So, as you say, a *mortgage* *and* *rent*.
Agreeing to this is just…nuts.
Many sellers don’t want to deal with VA or FHA loans – although this could change if/when sellers get desperate.
Will be interesting to see if things pick up nationwide or only in specific markets. In my little midwest town the inventory is low quality and double the price before the pandemic.
Are we finally popping that bubble?
Sellers are going to be on the defensive, heading into winter, expectations that mortgage rates have further to fall… Lowball those mofos!
Find an r.e. agent who will work with you offering a verbal – don’t keep writing new contracts to buy. Then skip the Zillow estimate of asking to selling price stat. (97%) and go way below asking, especially for a vacant home. I’ve worked with agents who will submit on a verbal offer over the phone. I kept my word on what I’d pay. Why not?? Skip etiquette or find another agent.
If the seller has monthly costs in the area of $2500/mo. or more, they will be highly motivated to ditch that albatross in and around December and January, unless mortgage rates really plummet.
Cash buyers have been trying to front run the drop. Then they can unload when the rates drop further and the buyers who need mortgages step in.
Housing will pick up when the lockin effect is negated by low interest rates. This could happen next season, as the consensus is around fed lowering to 3% by end of ’25. The prices aren’t going to do down, just up. Those that locked in might want to upgrade and reap the rewards of buying early in the pandemic. Or those who bought way back and are looking to downsize sell there large family houses. Either way inventory will increase but the demand hasn’t been satisfied. A housing crash isn’t likely. To increase affordability, they need to make it easier for low income families to get loans. That way builders, build low income housing instead of mostly middle-upper class housing. The increase in low income housing would decrease demand for expensive housing.
If the Fed lowers to 3%, mortgage rates will be right around 6%, which is about where they are today (6.15%) because it seems everyone has already priced all these rate cuts into their future scenarios.
So they need to price in more cuts, which means more wait and see mentality.
Easing ultimately tips consumers to wait and see.
I suppose this is why timing easing is so critical.
You can’t start flip flopping otherwise rates fly back up even if you don’t raise rates.
If you decide you need to cut further, suddenly, more wait and see mentality!
Soft landing, yeah right!
That’s how deflation works.
The best thing that can happen to this housing market is lots of wait-and-see added on top of the Buyers’ Strike. It needs to reach the point where potential and actual sellers get desperate. And then they might start facing reality.
6% mortgages are a different animal than 3%. This is an intractible situation. The Fed is washing it’s hands of any responsibility for inflated asset prices. It’s more likely that there’s nothing they can do now to fix this mess. They’re also mindful of political reprecussions and are not willing to keep rates higher for longer given their fears of inciting an unemployment catastrophe. And Congress is of no help due to defecit spending dwarfing QE. The days of the Fed fearing inflation are over – this brief episode was not painful enough to trigger repressed memories. Nothing will fundamentally change unless an unemployment crisis arises or inflation comes back on a larger. It’s worth pondering what, if anything, could cause this as a tipping point. Local governments running out of pandemic money and passing the new reality onto taxpayers? AI decimating high paying jobs? Infrastructure liabilities from aging unsustainable suburbanized development patterns? Or maybe we have moved post boom and bust cycle economics (and that’s a scary thought because it contradicts all recorded history). More questions than answers.
I was watching an interview of an economic analyst and he said yesterday that this was basically the FED saying we nailed the inflation problem
“The Fed is washing it’s hands of any responsibility for inflated asset prices. It’s more likely that there’s nothing they can do now to fix this mess. ”
Sadly this is painfully obvious when Pow Pow stated current housing prices is a supply problem and oopsie, FED can’t do anything to help or course correct…This is the ugly nature of inflation..inflation might slow or even back down to 2% but the ratchet effect is there and with housing it’s a giant ratchet effect
It’s not like the liquidity isn’t there to pour back into the RE market. Wolf just put out two articles in the last month pointing out two things:
1. Savings are at an all-time high.
2. The labor market is showing few signs of cooling down.
It’s a legitimate Mexican standoff and the stakes are the OK Corral itself.
I prefer High Noon and shooting Frank Miller dead.
Or perhaps playing one mob off against the other as in “A Fistfull of Dollars”.
As a recent buyer in a formally hot market, here is my boots on the ground reality:
My mortgage was sold twice in 2 months. Fannie owns it now.
My home price is down $10K since we closed 3 months ago. Don’t care.
The mega landlord we bought from has at least 6 houses for sale and 3 rentals available within a two block area from us. They seem to put houses on the rental market for a month or two and if they don’t rent, they put them up for sale. The for sale houses are all over 30 days on the market, none sold over the summer.
The over building is still ongoing in my town. I see smaller homes priced under 300K now.
What area of the country?
Where are you?
Meanwhile county auditor offices are scrambling to lock in these ridiculous home valuations! They are trying to hit us with a 51% increase. While at the same time destroying our neighborhood. This is how rebellions begin. Bunch of wasteful lazy thieving POSs.
I am in the midwest. 3 houses went for sale over the past month in my neighborhood. sold in 2days, 3 days, and 10 days. All were listed about 1% to 2% above the Zillow Z-Estimate.
typical 4 bdrm / w 2 car garage. 2500 to 3000 sq ft.
Prices were $155 sq/ft to $185 sq/ft ($375k to ($425k)
If I remember right, I think you said you’re in Texas?
Wow Wolf what a memory!!
I just live here, LOL
Based on my memory: Petunia has posted a series of interesting comments over many years on their renting experience in Florida and then their move to Texas where they bought. We’ve watched her son grow up here, we know about her background (math major and Wall Street experience?), and she explained to us why she took SS before full retirement age. Reading every comment here since time immemorial, I have watched many people’s lives move on. And some of this stuff sticks and comes out with a bit of prodding.
Or perhaps playing one mob off against the other as in “A Fistfull of Dollars”.
Nothing lower prices can’t fix
For the average guy or gal, the hurdles you cited seem to be stacked up against them.
Prices still too high.
Rates, a whole generation used to 3% mortgage money, still scared at 6%
Incomes trying to catch up to inflation.
Maybe there is still a fair amount of “adjustment” needed on all three before the ice melts. Just guessing on my part.
The ten year appears to be climbing (in rates) so maybe we’ve already hit the bottom in mortgages. A 6+% fixed mortgage for 30 years isn’t so bad historically so it’s going to be up to prices and incomes to heal this housing market.
The missing part of the discussion is the increased cost of building, and the related increased costs of maintenance, especially for landlords and the concomitant effect that has on rents. Many would like to think that builders could always cut down on their profits, but there may be less room for that than some think. Possibly, the only realistic option is to start building less-huge, less-grand houses and for all the would-be buyers to recognize that the dream of a mini mansion will stay out of reach for most.
You’re talking about sales of “new homes” — not existing homes. Sales of new homes have been doing well because builders have ratchet down their price points, and because they’re spending lots of money on buying down mortgage rates. Lots of articles here on WOLF STREET about this, including with the most recent data:
https://wolfstreet.com/2024/08/23/inventory-of-new-completed-houses-surges-to-highest-since-2009-triple-from-2-years-ago-exactly-whats-needed-to-bring-down-prices-across-the-housing-market/
To increase home sales and reduce prices why not phase out the gain exclusion. That would cause sellers to move down on price with some urgency. In times like these, you get less pushback if you tax those who benefited from past policy errors.
Also, why not phase out like kind exchange rules.
With housing gains in the stratosphere and deficits too high, it’s the right time.
The reason people lose trust in government is that people are forced to pay for others’ mistakes or somebody else’s windfall. And yes, the RE windfalls did stem from QE and ZIRP, which were obvious errors. Hard to argue otherwise.
Gloomier home sales will be supported by more job losses — Bloomberg projects 91,000 additional jobs lost per month going forward, based on QCEW analysis.
Cutting rates will be a symmetrical process mirroring the rate hikes — Fed just getting started as the soft landing runs off the runway at 300 mph
“Fed’s Powell Says We Understand That People Are Experiencing High Prices, And That It’s Painful; Says We Will Mentally Tend To Adjust Payroll Numbers Based On QCEW”
If prices are “too high”, why are they up YoY to a new all time high?
Prices in Connecticut and Massachusetts are apparently too low because everything gets bid up in crazy bidding wars. Prices up >10% YoY.