Homebuyers aren’t responding to lower mortgage rates, housing expert says

Mortgage rates have declined sharply in recent months, but that hasn’t been enough to woo weary homebuyers back into the market.

According to Reventure App CEO Nick Gerli, “One major problem for the housing market is that homebuyers are not responding to lower mortgage rates.”

Although average 30-year mortgage rates have fallen from 7.2% to 6.4% over the past three months, “there has been no bounce back in buyer demand,” said Gerli.

“In fact, mortgage purchase applications just came in at a level 9% below last year,” he said, referring to the latest weekly mortgage application data, which showed only modest gains for new purchase applications and a slight drop in refinancing.

Overall, applications “remain at the lowest level in decades,” Gerli explained.

Gerli echoed recent comments by Moody’s economist Nick Villa, who said housing demand will only rebound once mortgage rates fall to the low 5% range. Based on recent forecasts by Moody’s, Fannie Mae, and the Mortgage Bankers Association, this could still be more than a year away.

In the meantime, homebuyers continue to face other affordability challenges, such as elevated home prices, low inventories of affordable homes, and higher utility bills.

Housing market defies convention

The New York Times recently reported that the housing market is “different and stranger than the one described in economics textbooks.”

Economists say housing inventories are finally rising while demand remains relatively low. Under normal circumstances, home prices should begin to cool.

As CNBC explained, the problem is that most of the inventory gains have come from new homes, which account for roughly one-tenth of the overall housing market. New builds also typically have higher price tags.

According to data from the National Association of Home Builders (NAHB), there’s a nine-month supply of new builds for sale, nearly three times higher than that of existing homes. New builds now account for 30% of total housing inventory, which is twice the historical average.

As home prices and mortgage rates remain elevated, more homebuyers are searching for cheaper homes in the $100,000 to $500,000 price range. But as the National Association of Realtors reported, supply is lowest within this price range.

This explains why home prices remain stubbornly high, and why they’re expected to continue rising for the foreseeable future. Economists at Goldman Sachs expect average home prices to grow between 4.4% and 4.9% annually over the next three years.

“[I]nventory is rising and will continue to rise, particularly as the mortgage rate lock-in effect diminishes in the quarters ahead. But current inventory levels continue to support, on a national basis, new construction and some price growth,” said NAHB chief economist Robert Dietz.

Meanwhile, economists at Bank of America believe housing conditions could remain unaffordable well into the 2030s.