The housing market remains a cautious landscape for potential homebuyers, as high prices and mortgage rates continue to weigh on their decisions. This is reflected in the latest Consumer Confidence Index from the Conference Board, which reveals a dip in home purchasing plans. While the overall index rose in August, the six-month moving average for home buying intentions hit a 12-year low, indicating hesitancy among potential buyers.
Despite a recent drop in mortgage rates from 7.2% to 6.4% over the past three months, buyer demand hasn’t seen the rebound some analysts expected. Nick Gerli, CEO of Reventure, noted on X (formerly Twitter) that mortgage purchase applications are currently 9% below last year’s levels, remaining at multi-decade lows. He attributes this sluggish response to the fact that current rates, while lower than recent peaks, are still significantly higher than the 3-4% range seen from 2018 to 2021.
The affordability crisis is a driving factor in this market dynamic. Gerli estimates that the typical mortgage cost now consumes over 40% of the median US household income, highlighting the unsustainable nature of current conditions. This underscores the need for a multi-pronged approach to rebalance the market.
However, there are signs of potential optimism. The Conference Board report indicates that average 12-month inflation expectations have dropped to 4.9% in August, the lowest since March 2020. This could eventually alleviate some pressure on the housing market in the long term.
Gerli identifies three key mechanisms for improving housing affordability: lower prices, lower mortgage rates, and higher incomes. He anticipates that all three will need to work in concert over the next 3-4 years to bring the market back into equilibrium. He believes that existing homeowners have sufficient equity to absorb meaningful price cuts, which could reinvigorate buyer demand more quickly than waiting for income growth or further rate reductions.
While the immediate outlook for homebuyers remains challenging, the prospect of eventual rate decreases, potential price adjustments, and ongoing wage growth suggests a more balanced market in the coming years. The recovery, however, is expected to be gradual, with mortgage rates not anticipated to fall below 6% until early 2025, based on current Federal Reserve projections. This implies that real improvements in affordability might be a year or more away.
The Conference Board’s data also highlights regional and demographic variations in consumer sentiment. Confidence declined among consumers under 35 and those earning less than $25,000 annually. Conversely, it increased for those 35 and older, with consumers earning over $100,000 remaining the most confident over a six-month period.
As the housing market navigates these challenges, the path towards a more balanced and sustainable landscape will require a collaborative effort involving price adjustments, rate reductions, and income growth. This will require time and a patient approach, but ultimately, the factors driving a more balanced market are present.
