The housing market remains sluggish, with contract signings plunging to record lows last month. The National Association of REALTORS® (NAR) has reported a 5.5% drop in its Pending Home Sales Index for July, marking an 8.5% decrease compared to the same period last year. This index, a forward-looking metric based on contract signings, underscores the ongoing challenges facing the real estate sector.
According to NAR’s chief economist, the anticipated recovery in housing sales did not materialise over the summer. Despite positive job growth and an increase in housing inventory, these factors have been insufficient to counteract the prevailing issues of affordability and uncertainty surrounding the upcoming U.S. presidential election. This uncertainty has prompted many potential buyers to adopt a “wait-and-see” approach. The current climate is further complicated by fluctuating mortgage rates. Federal Reserve Chair Jerome Powell recently signalled that policy adjustments, including potential rate cuts, may be on the horizon. Although the Fed’s rate adjustments do not directly determine mortgage rates, they can influence them. Economists suggest that if the Fed proceeds with anticipated rate cuts, it could lead to lower mortgage rates, although the exact impact remains uncertain.
Some buyers are holding off in the hopes that a rate reduction could make home purchasing more affordable. Portfolio managers at The Palisades Group predict that the Fed could implement up to four rate cuts before the end of the year, which might lower mortgage rates from their current mid-6% averages. Additionally, a significant increase in housing inventory—up 20% in July compared to the previous year—could offer more options for buyers, potentially easing some of the market’s current constraints. In summary, the housing market is navigating through a period of stagnation and uncertainty. While inventory levels are improving, the interplay of affordability issues, potential interest rate adjustments, and political uncertainty continues to weigh heavily on buyer confidence.
