Falling mortgage rates creating 'more choices' for homebuyers

US new home sales jumped by over 10% month-over-month in July, according to the US Census Bureau. The National Association of Realtors reported existing home sales to have risen by 1.3% month-over-month in July.

National Association of Realtors (NAR) Chief Economist Lawrence Yun sits down with Brad Smith on Wealth! to talk about what this data is signaling about the US housing market, especially after Federal Reserve Chair Jerome Powell communicated plans to cut interest rates in September in his Jackson Hole speech.

"Definitely, we are in a downward trend in mortgage rates. Housing sector [is] always one of the most sensitive to the mortgage rate changes, and consequently mortgage rate today at one-year-low level at under 6.5%, we have not seen this for the past 12 months," Yun tells Yahoo Finance. "Very good news. Moreover, more inventory means more choices for consumers."

Yun believes falling mortgage rates — the 30-year fixed-rate mortgage now sitting at 6.46% — will open up new opportunities for homeowners, especially for those moving on into new life stages and wishing to sell.

"So all [these] pent-up potential sellers, I think, will steadily move into the market as mortgage rates decline. Of course, it's not a 3%, 4% mortgage rate, but it is a positive development for the real estate [market]," Yun explains.

For more expert insight and the latest market action, click here to watch this full episode of Wealth!

This post was written by Luke Carberry Mogan.

Video Transcript

Sticking with the housing market.

July home sales numbers coming in at 739,000.

That's a month to month increase of over 10% as lowering mortgage rates seem to be showing increased demand.

These numbers are on top of existing home sales which grew 1.3% in July stopping a four month sales decline.

This according to the National Association of Realtors for more on the latest data print and looking ahead to what a potential September rate cut could mean for the housing market.

We're joined by Lawrence Yun, who's the National Association of Realtors, chief economist.

Great to see you as always and have you on the program here with us, Lawrence first and foremost, let let's start with the latter part of what I just mentioned in that intro, which is what happens to the housing market if we finally do get the rate cut that not just the equities markets are anticipating, but a lot of house hunters out there were hoping on.

Oh, well, you know, the bond market has already adjusted in anticipation of the September rate cut and more rate cuts in the later months.

Uh and all of us are going into next year.

So definitely we are in a downward trend in mortgage rate housing sector always one of the most sensitive to the mortgage rate changes and consequently, uh mortgage rate today at one year low level, you know, under 6.5 we have not seen this for the past 12 months.

Very good news.

More over more inventory means more choices for consumers.

This is going to lead to a lot of dynamism and more sales of a home.

More buyers coming in, more sellers listing all good news.

What do you think the magical number is where are rates gonna need to come down to in order for people who are perhaps sitting on their homes right now and waiting to refinance, what do you think that number is gonna need to come down to on the rates to for it to make sense for them to refinance, list them homes and then putting more supply in the market.

Uh You know, we have to remember uh during the past couple of years, uh the mortgage rate have been above 7%.

So as the mortgage rate have come down already, we are seeing that revival of some refinance among those people who recently purchased in the past couple of years.

But of course, we know there are many other people who have already refinanced into even lower rates or people took that 3% 4% rate during the early months of the COVID uh period.

But the key question is whether people who are locked in on to those low rates decide to list because their life is moving on for the better, better jobs.

Maybe they are looking for better school district, maybe they have additional child in the family wanting to trade up or maybe retirees wanting a better retirement life by downsizing.

So all this pent up potential sellers I think will steadily move into the market as mortgage rate decline.

Or of course, you know, it's not a 3% 4% mortgage rate, but it is a positive development for real estate.

And certainly with that in mind, as we're kind of keeping tabs on n new and first time home buyers, what do you think is going to be the, the critical shift that we see in this new crop of homeowners and what they're looking for and ultimately what that means towards migration shifts even as they're getting into those first time homes.

Uh you know, the, you know, Americans view, they are part of their dream as owning part of America home ownership.

Uh but the overall migration trend has been that from the northern colder state, uh people moving into the southern state.

So the Carolinas Georgia, Florida has greatly benefited from this trend.

And I think that will continue and from California's migrating into Rocky Mountain States of Arizona and Nevada, you in Idaho.

And I think this trend will continue into the future.

But the key is staying within budget home builders in the past couple of years, they stopped building those mansions.

They are focused on more affordable priced home.

That's why they are clicking on the home sales and the inventory situation beginning to loosen up more choices for buyers.

All right.

Well, as of right now and based on the most recent reading median existing home sales price elevated 4.2% from July 2023.

That coming in at about $422,600.

13th consecutive month per year, readings of month, over month or year, over year gains, Lawrence.

It's always a pleasure to get some of your insight.

Some of your time here, Lawrence Yun, who's the National Association of Realtors, chief economist.

Good to see you.