Housing market sales activity in 2024 has closely followed the path of mortgage rates, and we expect that to remain true with July’s existing-home sales data that will publish on July 22. Each month, we use our Existing-Home Sales Outlook Report to ‘nowcast’ existing-home sales based on the historical relationship between sales, demographic trends, house-buying power, and the prevailing financial and economic conditions. While market challenges remain, a recent decline in mortgage rates contributed to a modest increase in our July nowcast of existing-home sales compared to one month ago, but sales remain lower than one year ago. 

While in the first few months of the year the pace of sales began to rise from 2023 lows, the remainder of the first half of the year failed to deliver on the early promise of a market rebound. The reason for this was a decline in mortgage rates early in the year, followed by a reacceleration in the second quarter, which intensified the rate lock-in effect and priced out potential buyers. The encouraging news now is that mortgage rates are trending lower again, providing a glimmer of optimism for the housing market in the fall. 
 

“Although the recent mortgage rate decline isn’t substantial enough to trigger a strong rebound in existing-home sales, it may lift sales from their more than 13-year low.”

It's All About the Rate

The popular 30-year, fixed mortgage rate is loosely benchmarked to the 10-year Treasury note, which is impacted by inflation expectations, the wider economy, and even geopolitical conditions. Recent weaker economic and labor market data have left investors spooked that the Federal Reserve (Fed) may be behind the curve in reducing interest rates. When investors sense increased uncertainty, there is a ‘flight to safety’ in U.S. Treasury bonds, which causes their price to go up, and their yield to go down, and mortgage rates tend to follow. 

The bond market is already incorporating the Fed rate cuts that are widely expected in September and beyond, due to the belief that inflation will continue to slow, but the weakening economy will become a concern for the Fed that will force them to act.  As a result, the 10-year Treasury is front-running expectations and is now below 4 percent. Mortgage rates have followed, dropping by approximately 0.5 percentage points in just over a month.  

Lower mortgage rates have a dual impact on the housing market-easing the rate lock-in effect for existing homeowners and improving affordability for potential home buyers. Holding income constant, a 0.5 percentage point decline in mortgage rates boosts house-buying power by $12,000 for the potential first-time home buyer. The decline in rates resulted in a nearly 2 percentage point increase in the share of renters who can afford the median-priced existing home nationally, from approximately 22 percent to just over 24 percent. 

On the supply side, while the recent decline in mortgage rates may encourage some existing homeowners to sell, the fact that 86 percent of mortgaged homes have a rate below 6 percent means the decline won’t unlock most homeowners.

Have Home Sales Bottomed Out?

A little relief from higher mortgage rates brings some reason for optimism to the housing market. Although the recent mortgage rate decline isn’t substantial enough to trigger a tsunami of existing-home sales, it may lift sales from their more than 13-year low. More gradual rate declines, particularly if accompanied by increased inventory, might finally allow the market to thaw.

July 2024 Existing-Home Sales Outlook Highlights

For the month of July, First American updated its Existing-Home Sales Outlook Report to show that:

• Existing-home sales for July are expected to increase 0.03 percent from June’s pace of sales and decrease 6.3 percent compared with the predicted pace of sales a year ago.
  
  
• The largest contributors to the projected monthly change are a strong economy (+0.3 percentage points), increased house-buying power (+0.10 percentage points) and loosening credit conditions (+0.04 percentage points). 
  
  

Methodology

Our Existing-Home Sales Outlook Report ‘nowcasts’ existing-home sales, which include single-family homes, townhomes, condominiums, and co-ops on a seasonally adjusted annualized rate based on the historical relationship between existing-home sales, U.S. demographic trends, house-buying power, and the prevailing financial and economic conditions, as well as momentum, a weight assigned to past values. Please note that the Existing-Home Sales Outlook Report is based on assumptions about demographic, economic and financial conditions. Actual values may differ from those projected. Recent existing-home sales estimates are subject to revision to reflect the most up-to-date information available on the economy, housing market and financial conditions.