Housing market to see 'slow comeback' as mortgage rates fall

US existing home sales fell below April estimates, reporting a figure of 4.14 million for the month while declining more than expected by 1.9% month-over-month. Realtor.com Chief Economist Danielle Hale helps Yahoo Finance look deeper into the housing data and what it signifies for forthcoming improvements in the housing market.

"For existing homeowners who are maybe reasonably happy with their home, but ready to make a trade either up or down or to something different, it is really expensive to try to get a mortgage at a 7% rate, compared to their current rate," Hale explains. "90% of them are under six and two-thirds are under 4%. so it makes it a lot more expensive to move."

She also expects real estate market and buyer activity to "ramp up" with every little decline in mortgage rates, but forecasts it to still be a "slow comeback."

For more expert insight and the latest market action, click here to watch this full episode of Market Domination.

This post was written by Luke Carberry Mogan.

Video transcript

Well, new data on existing home sales for April out today.

That number declining for the second straight month to an annual rate of 4.14 million.

Yet, the median price of an existing home sold rose by 5.7% year over year, just over $400,000.

Joining us now, realtor.com, chief economist Dan Yell Hale Danielle, it's good to see you.

So as we look at these numbers and this continued weakness, can we mostly point the finger at at mortgage rates which have not come down?

Yeah, I think mortgage rates and the resulting lack of affordability in the housing market is a key culprit behind this disappointing print today, I should say somewhat disappointing print.

So 3.14 million, I'm sorry, 4.14 million.

A modest decline from last month.

Home sales have been at this relatively low 4 million plus level for the past several months.

They're really kind of struggling to out of here because there are some significant challenges in the housing market, not just higher mortgage rates, but also home prices that hit a new high for this time of year and continue to present affordability challenges.

In order to really make some headway against these challenges, we're going to need to see more building.

The housing market continues to be short on supply even though we did see some optimistic numbers, some signs of improving supply.

We're still not at a point where supply is ample enough uh to help cool off home price growth.

Danielle, let's stick with mortgage rates for a second because I, I'm on mortgage news daily here.

They're telling me the 30 year fixed Danielle 7.09%.

I'm interested where you think that is, you know, six months from now, Danielle, 12 months from now.

And what's, you know, what's the rate that we need to see to really jump start greater activity?

Danielle, you know, do you, do you think it's 6.5, 6 lower?

Well, when you look at outstanding mortgage debt, 90% of it right now is under 6% and about two thirds of it is under 4%.

So for existing homeowners who are, you know, maybe reasonably happy with their home, but ready to make a trade either up or down or to something different.

Uh, it is really expensive to try to get a mortgage at a 7% rate compared to their current rate.

90%.

Some of them are under six and two thirds are under 4%.

So it makes it a lot more expensive to move the closer we get back to uh to those numbers.

I think the more we're going to see housing activity ramp up and every drop in mortgage rates brings some potential buyers and likely sellers as well back to the housing market.

So every little step down is going to help.

Um but you know, I think we're not going to get to levels where we're going to see a jumpstart in housing activity.

I think it's going to be more of a of uh a trickle or a slow comeback in housing activity as those mortgage rates come down.

Danielle, I'm really curious about the new home market versus the existing home market, right?

The existing home market much bigger to be sure, but we are not seeing the same kind of pricing pressure in the new home market.

You know, we're seeing incentives still be offered because the home builders wanna move those homes.

So if people are looking right now is new, are new homes actually more affordable on a relative basis, they're not necessarily more affordable on a, you know, an absolute price basis.

But I think new homes are definitely an area that consumers should explore, especially if they're in a region like the South where builders have been really active parts of the Southwest.

Builders remain active.

And so, you know, builders don't have a low existing mortgage rate that they are tied into.

And so they have continued to build and create inventory is available for buyers they also are, you know, they're a business.

And so they're very pragmatic when looking at the market, if they need to make incentives in order to make a home purchase affordable for buyers, they have shown a willingness to do so whether that's cutting asking prices or offering mortgage rate, buy downs either temporary or longer term.

And so as a result, if consumers are shopping and they see, you know, if they haven't considered new homes, it does make sense to consider them new homes right now because uh builders have done a good job of keeping up their pace of activity represent about 30% of the market of homes for sale.

So it is likely that consumers are going to have new homes as an option to consider and perhaps more so than they can find in the existing home market today.

All right, Danielle always appreciate having you on the show.

Thanks so much for joining us.

Absolutely.