Housing Market Shows Signs of Life, But Challenges Remain
The US housing market is finally showing signs of improvement, with listing activity and homes under contract increasing nationwide last month. This uptick in activity suggests that some of the paralysis caused by the rapid jump in mortgage rates in recent years is starting to ease.
Gains in Pricy Locales
The biggest gains were seen in expensive markets like Seattle, Los Angeles, and San Jose, California. These regions have higher proportions of buyers who finance their purchases and jumbo mortgages, which offer bigger monthly cost savings when mortgage rates fall. In some markets, listing prices have even dropped slightly.
New Listings on the Rise
New listings rose by 25% or more last month compared to a year earlier in the Seattle, Silicon Valley, Denver, and Washington, D.C. areas, according to Realtor.com. Median listing prices in all of these markets top $599,000. This increase in new listings is a welcome sign, but the market still has a long way to go in terms of normalizing supply.
Mortgage Rate Savings Spark Buyer Interest
Any mortgage rate savings can help spark buyer interest in expensive parts of the country. Average interest rates this year dropped more than a percentage point from as high as 7.22% in May to closer to 6% last month. This drop in rates can result in significant monthly savings for buyers, making it easier for them to purchase a home.
Pending Sales Increase
Pending sales, a measure of homes under contract, were up by double digits in Portland, Oregon, Seattle, and several California cities in recent weeks, according to Redfin. Nationwide, Redfin calculated that pending sales rose 3.2% year over year for the four weeks through October 13. This was the biggest jump in more than three years.
Challenges Remain
Despite these positive signs, challenges remain in the housing market. Homeowners with ultra-low mortgage rates are still reluctant to list their homes and accept today’s rates of 6% or more, a phenomenon known as the rate lock-in effect. This means that the market still has a long way to go in terms of normalizing supply.
Seasonal Slowdown Ahead
Homebuying is a heavily seasonal activity, and the market is expected to slow down for the winter. Mortgage rates have started rising again, and mortgage applications for home purchases have slowed. While the market is making strides in the right direction, it’s still going to be a while before the mortgage rate lock-in effect is no longer a major factor.
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