The market? It is a-changing – a bit

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Published Date 7/15/2024

The slow drip of news regarding inflation and the economy can feel maddening in these days of high interest rates, low housing inventory, and high sale prices. We wait for mortgage rates to dip, which they did this past week, and for the prospect that the latest inflation and jobs data increases the chance of a rate cut in September. In other words, while the perfect storm of news is slow to gather, it seems to be forming at last.

“Mortgage rates could continue to fall after the latest data shows inflation easing — something that increases the likelihood of rate cuts,” says Realestate.com’s Dave Gallagher. “Even before today's release of the Consumer Price Index — which showed annual inflation dropping from 3.3% in May to 3% in June — mortgage rates were on the decline.” He goes on to cite Freddie Mac’s Sam Khater, who says the dip in rates was likely caused by last week's jobs report showing a cooling labor market.

"We're also seeing more inventory on the market, including a fair number of listings with price cuts, which is an encouraging sign for prospective buyers," Khater said.

Will the feds cut rates at their next meeting scheduled for July 30-31? Not likely, according to Lisa Sturtevant, chief economist for Bright MLS, who says analysts don't expect the Fed to cut rates until September.

A shift in the market could start before September, however. "Mortgage rates could begin to come down even before an actual cut to the federal funds rate, however, if members of the central bank continue to clearly telegraph their intentions," Sturtevant said.

Why is inflation finally beginning to wane? The biggest drops came in gas prices (down 3.8% in June) and used cars (down 1.5%). While rental rates increased 0.2% — that figure was down from the 0.6% increase at the beginning of 2024.

The National Association of Home Builders (NAHB) forecasts the shelter category will continue to decline in the coming months, which could finally get the inflation rate closer to the Fed's 2% goal.

A series of events may happen as follows when rates come down, according to Gallagher; more inventory will surface while applications will remain relatively flat. “A downward trend in mortgage rates would be welcome news to homebuyers, who would also have more homes to choose from as inventory continues to build,” said Ralph McLaughlin, Realtor.com's senior economist.

But even as rates continue to fall, McLaughlin doesn't expect a flood of buyers to enter the market. Instead, he predicts home sales will tick up gradually.

“A continued drop in mortgage rates in the coming weeks would also coincide with an expected seasonal drop in home prices: says Gallagher. “While the latest Redfin report found the U.S. home-sale price hit an all-time high of $397,482 during the four weeks ending July 7, it also noted there are signs that this is the peak.”

The good news? The typical home is now selling for 0.4% less than its asking price. And that hasn't happened at the beginning of July since 2020. Redfin's Homebuyer Demand Index is also down 16% compared to a year ago.

Realestate.com, TBWS

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