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The recent weakness in the housing market could be turning around, thanks to a steep drop in mortgage interest rates.
Consumers signed more contracts to buy existing homes than expected in June. So-called pending home sales rose 2.8% compared with May, according to the National Association of Realtors. Sales were 1.6% higher compared with June 2018, the first annual gain in 17 months. Signed contracts are an indicator of closed home sales one to three months out.
"Job growth is doing well, the stock market is near an all-time high and home values are consistently increasing," wrote Lawrence Yun, chief economist for the NAR in a release. "When you combine that with the incredibly low mortgage rates, it is not surprising to now see two straight months of increases."
Mortgage rates fell sharply throughout May and June. The average rate on the 30-year fixed mortgage stood at 4.29% on May 1 and ended June at 3.81%, according to Mortgage News Daily. That improved affordability, but apparently not enough. Home prices are high and still gaining in most major markets. Home price gains widened in seven major markets in May, according to the latest S&P Case-Shiller home price indices.
"If mortgage rates remain near recent lows, we could see prices pick back up as a result of improved affordability as well as the possibility of more limited inventory available," said Danielle Hale, chief economist for Realtor.com.
The supply of homes for sale had been rising for much of this year but flattened in June. Some are predicting inventory will be lower again this fall. That is causing more competition in the market.
"Homes are selling at a breakneck pace, in less than a month, on average, for existing homes and three months for newly constructed homes," said Yun. "Homeowners' equity in real estate has doubled over the past six years to now nearly $16 trillion. But the number of potential buyers exceeds the number of homes available. We need to see sizable growth in inventory, particularly of entry-level homes, to assure wider access to homeownership."
Regionally, the Realtors' pending home sales index rose 2.7% in the Northeast month-to-month and was 0.9% higher than a year ago. In the Midwest, the index grew 3.3% monthly and 1.7% annually. In the South, the index increased 1.3% monthly and 1.4% annually. In the West pending sales jumped 5.4% monthly and were 2.5% higher than a year ago.