July 13, 2023

Lower rates create more demand.

The supply of homes is a function of demand and sellers willingness to sell.

When rates hit 6.5% more buyers move to the sidelines, and more sellers decide not to sell.  After all, why would a seller give up a 3% mortgage to become a buyer at 6.5%?

Nevertheless, supply remains so low, that even as rates top the 7% range, there are enough buyers for whom a 7% rate is not a hindrance in purchasing a home – with continued low supply, prices will not fall.

Prices are just slightly lower than June of last year.  That is remarkable considering how buyer demand has slowed and mortgages have risen.

Inventory is at 2.5 months, days on the market now 50 days, sales have slowed, but prices are holding.

If there was a looming housing bubble, inventory would be ballooning – but it’s not.  Is it possible? Yes, but rates would have to rise above 7.5%. In September 2022 rates rose to 7.5%.  It stopped demand.  Inventory rose, prices adjusted. Keeping my weekly eye on the market.

As I write this, the morning of July 13^th, the 10 year yield is 3.816%.  The average 30-year conventional mortgage rate is 7.12%. In June sales of new build single family homes in Sarasota County were up 30%.  Resales were down 13%.  Nevertheless, 7% interest rates are not affecting prices.  Jobless claims matter more than interest rates. Credit markets are doing well. It has just been reported that the rate of inflation is at its lowest level since 2021. Just the news needed to bring mortgage rates lower. Once the jobless rate breaks above 4.5% and claims rise, a recession will occur, the Fed will lower rates, home prices will rise.

When mortgage rates fall, sellers will list their homes. Coming off historically low inventory, prices will go up from current plateau to high single digits.