Pent-up demand and falling interest rates offer a glimpse of optimism among the homebuying public, but
“The housing market is facing a significant housing shortage, and this supply constraint is unlikely to be resolved quickly,” according to a quarterly report from Veros Real Estate Solutions.
“While inventory has increased steadily over the past year, it remains well below pre-pandemic levels. This is because many homeowners have mortgage rates of less than 4%, making them less likely to move.”
While recent downward interest rate moves raise hopes for higher sales volumes, the rise in housing costs in recent years has made many markets out of reach for aspiring homeowners, with the national average price
Due to current supply and demand factors, home prices are not expected to deviate significantly from their current trajectory, Veros said. Still,
The drop in mortgage rates over the summer has opened up the opportunity some hopeful buyers have been waiting for, according to Veros. At the same time, a significant increase in sales may not happen as quickly as hoped without more movement in house prices, initial data shows.
Last week,
“A growing share now points to high home prices rather than high mortgage rates as the main bottleneck to affordability,” said Mark Palim, senior vice president and chief economist at Fannie Mae.
Recently, researchers at the government-sponsored company said existing home sales were likely to end the year at their lowest level since 1995.
“This signals to us that consumers are paying attention to the easing of interest rates, but are still feeling constrained by the significant increase in home prices over the past four years,” Palim said in Fannie Mae’s latest Home Purchase Sentiment Index.
Only 19% of consumers surveyed in Fannie Mae’s September sentiment survey said the current market is a good time to buy.
The interest component looked much more favorable among consumers: the share of respondents expecting further falls in the coming year rose to a record high of 42%. In September, Fannie Mae reported that 39% expected interest rates to fall.
Sentiment towards interest rate developments drove much of the spike in the overall HPSI, which reached 73.9 in September, the highest level in more than two years. The score rose from 72.1 a month earlier and increased from 64.5 a year ago.
“But we have yet to see consumers’ renewed interest rate optimism translate into a meaningful increase in home sales activity,” Palim noted.
Last month, the Federal Reserve cut interest rates by 50 basis points, fueling housing market hopes that Treasury yields would fall, prompting home lenders to take similar steps. A
In his report, Veros found that high costs and insurance costs in the Sunbelt, where housing markets boomed during the pandemic, are now deterring buyers from many of those areas.
On the other hand, homebuyers are more likely to be looking for affordable options in the Northeast and Midwest. The top ten markets for price growth are all in these regions, with values expected to rise between 5.9% and 7.6%. Rochester, New York, topped Veros’ list, followed by Rockford, Illinois, and Reading, Pennsylvania.