Is the housing market starting to look more appealing? Recent data suggests a glimmer of hope for both homebuyers and sellers, although monthly sales figures are still lagging behind previous months.

Last week, mortgage rates dropped significantly, hitting below 6.5% for 30-year loans for the first time since May 2023, as reported by Freddie Mac. At that time, the Federal Reserve was still increasing short-term interest rates to combat inflation.

This decline in mortgage rates follows two important updates from the National Association of Realtors that indicate the housing market might be gaining momentum:

◾ Home listings saw an increase of 23% in June compared to the previous year, with unsold homes reaching a supply of 4.1 months, the highest since May 2020.

◾ Pending home sales edged up nearly 5% from May, hinting that existing home sales could improve from June’s record low of 3.89 million on a seasonally adjusted annual basis.

Understanding the decline in housing interest rates

According to Freddie Mac, mortgage rates have declined by over a percentage point from their peak of 7.79% in October. This reduction can lead to substantial monthly payment savings for new homebuyers.

Potential savings on mortgage payments

The recent dip in mortgage rates since October could result in savings of more than $300 monthly for buyers, according to Lawrence Yun, Chief Economist at the National Association of Realtors. He stated last week, “Those homebuyers who were priced out a few months back should reassess whether they can now enter the housing market, given job security.”

What does the phrase “secure jobs” mean?

A disappointing jobs report published last Friday sparked concerns among stock investors about a possible recession. Conversely, it gave confidence to those investing in long-term bonds, suggesting that the Fed’s policymaking committee may reduce interest rates in their upcoming September meeting. As a result, the yields on those bonds decreased, leading to lower mortgage rates this week.

“Market volatility in stocks will likely lead to some fluctuations in mortgage rates,” Yun noted on Friday to YSL News. “However, the overall trend indicates lower rates compared to the first half of the year.”

Payments decrease on new 30-year fixed-rate mortgages

Despite the more favorable circumstances for buyers and sellers, the housing market still faces challenges.

Factors hindering the housing market

◾ Higher prices: The median price for homes in the U.S. jumped to a record high of $426,000 in June, as reported by the National Association of Realtors. That month marked the twelfth consecutive month of year-over-year price increases.

◾ Remaining high mortgage rates: Even with the drop in rates for 30-year fixed-rate mortgages this year, they are still approximately 2.5 percentage points above the median of 4% observed over the last decade.

◾ Potential sellers hesitating: Homeowners who benefitted from historically low mortgage rates in recent years have been reluctant to take on new mortgages, as current rates may be significantly higher than what they are currently paying.