Home sales are stuck near 4 million a year, and September’s pace of 3.99 million was still 2.2% lower than a year ago. NAR’s chief economist says the reason is simple: pent-up housing demand is waiting on lower mortgage rates.
What this means for you: If you’re a buyer, inventory is finally in your favor, so you have more homes to choose from and more room to negotiate. The catch is the monthly payment. Until rates fall, many sidelined home buyers will keep waiting, and prices will stay firm.
Lawrence Yun said so on Nov. 6 at NAR NXT in New Orleans, according to NAR’s own release. His pitch: “significant” demand is bottled up. It could be released once supply and affordability improve and consumer confidence picks up.
“Affordability is tough, but people’s incomes are rising, and if somehow mortgage rates go down, think about the potential housing demand that could be released to the marketplace,” Yun said.
Pent-up housing demand: what the sales data show
The numbers explain the frustration. HousingWire reports that Yun pointed to a country of about 350 million people and 159 million payroll jobs. Yet home sales sit near 4 million a year, well below where they were in 2000.
September existing-home sales rose 1.5% from August to a seasonally adjusted annual rate of 3.99 million, NAR reported. The median price was $417,500, up 1.3% from last year.
The pipeline is getting thinner, too. NAR’s Pending Home Sales Index fell 7.3% in September to 66.0, a record low, HousingWire reported. NAR blamed “fast-rising mortgage rates.” Our own look at the record-low pending sales figures shows how fast the slide has been.
Plenty of homes, but buyers on the sidelines
Here’s the odd part: inventory is no longer the problem. September supply hit 1.60 million homes, a 4.8-month supply. Inman notes that is the most since November 2019.
“Home sales are not back up to pre-COVID, but the inventory conditions are back up to pre-COVID conditions,” Yun said in October.
So the store is fully stocked. The customers just aren’t checking out, because pent-up demand has nowhere to go at today’s rates.
Sidelined home buyers: the 40-year-old first-timer
This hits young families hardest. First-time buyers made up just 22% of all buyers, near the historic low, according to NAR. Their median age held at a record-high 40. That’s not a starter home buyer. That’s a mid-career one.
For a generation trying to put down roots and raise kids, the first rung of the ladder keeps moving up. These buyers on the sidelines haven’t lost interest. They’re simply priced out for now.
Yun also pointed to a mood problem. HousingWire says he described consumer sentiment as roughly half its 2000 level, even though employers have kept adding jobs. “If we can boost confidence levels, maybe that can also change the dynamics,” he said.
What could release housing demand
Yun said in September that rates “could be topping out.” Buyers and sellers, he said, may simply be holding back until rates move their way.
NAR’s own forecast earlier this year called for mortgage rates to average 6.5%. They have run above that lately, which is a big reason the waiting room is so full. Pent-up housing demand wakes up quickly when the monthly payment drops.
Next up: NAR releases October existing-home sales on Thursday, Nov. 12, at 10 a.m. ET. The pending sales index follows on Nov. 18. If the sidelined buyers are ever going to move, a drop in rates will be the signal.
Until then, everyone is staring at the same number on the mortgage quote.
