Sales of the lowest priced homes surged in July, a sign that the housing sector, battered by interest rate hikes by the Federal Reserve, is recovering.
Pending sales in the “starter home” category have increased 10.2% since July 2023, according to figures released Monday by real estate firm Redfin.
That compares with a 6.5% decrease in mid-range units, a 10% decrease in luxury units and a 7.9% decrease in “luxury” units, defined as the top 5%.
The surge could be due to falling mortgage rates: 30-year fixed-rate mortgages are paying 6.46% per month, the lowest since May 2023, after the Fed kept rates at their current levels of 5.25% to 5.5% over the past year.
“The increased hold on first-time home buyer sales is partly due to the recent decline in mortgage rates,” Redfin analysts said in a commentary.
“First-time homebuyers make up a sizable portion of the first-home buying market and are more sensitive to falling interest rates because they are less likely to have a large down payment, meaning that interest rate changes have a larger impact on their monthly payments,” the researchers wrote.
The “quintessential American first home” sold for $250,000 in July, a record for that segment.
Low-cost housing is still 4.2% higher than last July and more than 1% higher than headline inflation. The Consumer Price Index (CPI) fell to a 2.9% year-on-year increase in July, but housing inflation was 4.4%.
Consumer Price Index (CPI) housing inflation fell sharply from February 2023 to February 2024, but the pace of decline slowed for the remainder of the year. Housing costs rose 0.4% from June to July.
Mortgage rates have been in lockstep with 10-year Treasury yields, which have been falling since April. The 10-year note has offered a lower yield than the two-year note through 2022 and beyond, but the inversion has flattened in recent weeks as the Fed signaled upcoming rate cuts.
Federal Reserve Chairman Jerome Powell said on Friday that “the time has come” for the U.S. central bank to change its interest rate policy, with markets expecting the Fed to raise rates by either a quarter or a half percentage point at its next rate-setting committee meeting in September.
