Housing Market Is Recovering

 The Mortgage Corner

WASHINGTON (October 23, 2025) – Existing-home sales increased by 1.5% month-over-month in September, according to the National Association of REALTORS® Existing-Home Sales Report. The Report provides the real estate ecosystem, including agents and homebuyers and sellers, with data on the level of home sales, price, and inventory.

FREDexistinghomes

It’s about time. We are seeing a housing revival with existing home sales on a 7-month high for the first time since the 2008-09 Great Recession (wide gray band in FRED graph), as reported by the National Association of Realtors (NAR).

The housing market has been stuck in part because the Fed held off cutting interest rates until its September FOMC. The cut was just -0.25%, and two more rate cuts are expected this year.

That may start a more sustained housing recovery, as fixed mortgage rates are also beginning to decline despite rising inflation since April and Trump’s retaliatory tariffs. (Bond holders don’t like inflation because it reduces the value of bonds.)

"As anticipated, falling mortgage rates are lifting home sales," said NAR Chief Economist Dr. Lawrence Yun. "Improving housing affordability is also contributing to the increase in sales."

Affordability has improved because "Inventory is matching a five-year high, though it remains below pre-COVID levels," Yun added. "Many homeowners are financially comfortable, resulting in very few distressed properties and forced sales. Home prices continue to rise in most parts of the country, further contributing to overall household wealth."

The 30-year conforming fixed mortgage rate for best credit holders has dipped below 6% to about 5.875% for 0 pts. in closing costs, or 5.50% for a 1 pt. origination fee. The 15-year fixed rate is now 5.25% for 0 pts., and 4.875%, 1 pt. at this writing.

This year’s housing revival first showed up in a boost in new-home sales, according to the National Association of Homebuilders (NAHB). Sales of newly built single-family homes jumped 20.5% earlier in August, to a seasonally adjusted annual rate of 800,000 from an upwardly revised reading in July, according to newly released data from the U.S. Department of Housing and Urban Development and the U.S. Census Bureau.

Much of the new-home sales boost was due to a construction surge to as much as 1.9 million annual units after the COVID-19 pandemic, seasonally adjusted. That and record low interest rates during the pandemic caused bloated inventories that builders are attempting to reduce. So they are offering interest rate buydowns to reduce mortgage rates. It cuts into builders’ profits but adds little to the sales price.

Housing construction has declined since then, decreasing 8.5% in August to a seasonally adjusted annual rate of 1.31 million units and construction will probably remain lower until more buyers come into the housing market as mortgage rates decline further.

What about mortgage rates? That hasn’t stopped homebuyers before. The 30-year conforming fixed rate hovered between 7.5% to 5.0% from the beginning of the housing bubble in 2000 to 2010 when homebuyers went wild with subprime loans, until the Great Recession.

The moral of this tale is that homebuyers and lenders have always found a way to finance a purchase with an almost infinite variety of mortgage choices. But the U.S. population is beginning to shrink because of the immigration restrictions. Builders and governments must find more creative solutions to affordable housing to bring more young adults into the housing market.

Challenging affordability conditions have always created headwinds for the housing sector, but that never stopped those that wanted to own a residence during the era of double-digit interest rates in the 1980s and 90s.

The average 30-year conforming fixed rate mortgage didn’t drop below 10% until the 1990s and 7.5% until 2001.

I foresee lenders finding creative ways to finance more homebuyers in the coming years as well.

Harlan Green © 2025

Follow Harlan Green on: https://twitter.com/HarlanGreen

HOUSING IN RECOVERY--PART II

 The Mortgage Corner

Existing-home sales rose 2.2% in December to a seasonally adjusted annual rate of 4.24 million, the strongest pace since February 2024 (4.38 million).

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The huge jump in existing-home sales on still very high mortgage rates illustrates the enormous pent-up demand for rental or owner-occupied housing, I said last month. Demand is now exceeding the existing home inventory, just a 3.8 months’ supply vs. the 8-month supply of new homes for sale that is only partially filling the housing supply shortage. Realtors believe the strong demand will continue, in spite of the high rates.

"Home sales momentum is building," said NAR Chief Economist Lawrence Yun. "More buyers have entered the market as the economy continues to add jobs, housing inventory grows compared to a year ago, and consumers get used to a new normal of mortgage rates between 6% and 7%."

It remains to be seen how long consumers will tolerate such high mortgage rates. The 2001 Dot-com recession was the last time conforming 30-year fixed rate mortgages were above 7 percent, when existing-home sales then began the climb to a 7 million annual rate, before the long decline in interest rates. It all led to the 2007 housing bubble and Great Recession. If such demand continues, could we see another era of irrational exuberance as happened then? That’s grist for another column!

Existing-home inventory registered at the end of November was 1.33 million units, down 2.9% from October but up 17.7% from one year ago (1.13 million). Unsold inventory sits at a 3.8-month supply at the current sales pace, down from 4.2 months in October but up from 3.5 months in November 2023.

This is why building more new homes is so important. It is why builders have built up an 8-month inventory. And it is why sales of newly single-family houses in December 2024 were also so high, at a seasonally adjusted annual rate of 698,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development, above the December 2023 estimate of 654,000.

Even pending home sales jumped, another sign of an incipient housing recovery, Pending sales help to predict closings 30 to 60 days out. Pending home sales gained 2.2% in November – the fourth consecutive month of increases and the highest level since February 2023 – according to the National Association of REALTORS®.

“Consumers appeared to have recalibrated expectations regarding mortgage rates and are taking advantage of more available inventory,” said NAR Chief Economist Lawrence Yun. “Mortgage rates have averaged above 6% for the past 24 months. Buyers are no longer waiting for or expecting mortgage rates to fall substantially. Furthermore, buyers are in a better position to negotiate as the market shifts away from a seller’s market.”

Builders blame “unnecessary regulations” for much of the housing shortage. However, most of the ‘unnecessary regulations’ are at the state and local levels, such as restrictive zoning, state environmental laws, and even banking regulations.

It’s difficult to see how the outcome of national elections can affect such local changes. California is one such state that has taken on the NIMBYs (Not in my backyard) crowd as well as putting aside loan subsidies for affordable housing. That’s where the changes need to be to make up for the current housing shortage.

It’s hard for me to see that we will have another 7-million-unit sales year as happened during the housing bubble, however, no matter the mortgage rates. It was a different era, for those that can remember, since we have an ongoing labor shortage and higher construction costs (tariffs?) today.

Harlan Green © 2025

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

When Will Housing Recover--Part II

 The Mortgage Corner

Federal Reserve Chair Powell has said the Fed is about to cut interest rates, so I’ve been wondering if the housing industry can come out of its self-made recession?

One good sign is that existing-home sales ticked up for the first time in July, after falling steadily since the recent annual rate high of 4.4 million in February 2024.

The NAR said, “Total existing-home sales^[1] – completed transactions that include single-family homes, townhomes, condominiums and co-ops – ascended 1.3% from June to a seasonally adjusted annual rate of 3.95 million in July.” (But) Year-over-year, sales fell 2.5% (down from 4.05 million in July 2023), so that’s not much of an improvement.

This could be the beginning of an upward trend in overall sales, but the question now is not so much about mortgage rates, which will help sales and affordability, but an adequate housing supply to get sales back to the 4-5 million sales that prevailed in decades past and kept a much higher supply of for sale housing on the market.

Cutting interest rates is a start but the building industry for various reasons has been reluctant to build enough new homes for decades—ever since the Great Recession of 2008-09 and busted housing bubble.

This is just one of the ways Americans have been paying for the excesses of the Great Recession since then. The housing shortage may be its most pernicious result.

Calculated Risk

Calculated Risk’s graph of existing sales portrays the damage done by the Great Recession (middle gray bar in graph). Sales had reached a 7 million annual rate in 2005 at the height of the housing bubble, then plunged to 4 million units during the Great Recession and slowly rose to more than 5 million units annually until the COVID-19 pandemic.

More than one million excess units were built during the bubble, as Greenspan’s Federal Reserve attempted to goose sales any way they could to stimulate slowing economic growth while the Bush administration was fighting the Iraq and Afghanistan wars on terror.

The housing supply should be improving in anticipation of the Fed’s rate cuts that would bring down the cost of everything that goes into building new homes.

Sales of newly built homes in the U.S. just increased 10.6% in July to an annual rate of 739,000, up from a revised 668,000 in the prior month, the Commerce Department reported Friday. It was the highest sales rate in more than one year.

For-sale inventories have also edged up some 40 percent this year, as existing homeowners now see a chance to either move to a smaller unit, or into a retirement home now that mortgage rates are declining..

We still have a housing shortage of somewhere between 1-3 million residential dwellings, including owner-occupied and rental units, without considering housing for the homeless.

Another culprit of the housing shortage has been lenders that have become more conservative since the housing bubble. A credit score of 680 was acceptable to Fannie and Freddie for their best conventional mortgage rates prior to the Great Recession, whereas it is above 720 today, which means fewer home buyers are eligible for good loans.

It is really the Fed’s job to require banks to ease their credit standards in this case. Its inaction has only made matters worse for homebuyers (and therefore renters) with the housing shortage.

Now that Chairman Powell just announced that rate cuts are in the works—probably to begin at the Fed’s September FOMC meeting—they should use some of the other tools within their powers—such as requiring more affordable loan programs for entry-level homebuyers, as well as easing banks’ credit standards.

"The time has come for policy to adjust. The direction of travel is clear," Powell said in his speech to the central bank's summer retreat in Jackson Hole.

Let’s see if Powell means what he says and the Fed really wants to help cure the housing shortage.

Harlan Green © 2024

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Why Such High Interest Rates?

 The Mortgage Corner

I said last month the National Association of Realtor’s chief economist Lawrence Yun’s exclamation “the housing recession is over,” was because the NAR’s Pending Home Sales (i.e., homes under contract but not closed) rose for the first time in four months.

"The recovery has not taken place, but the housing recession is over," Yun had said at the time.

Calcuated Risk

Yun might not be so optimistic with this month’s existing-home sales, which are down to a six-month low. And we know why. It’s not only a very small number of homes for sale, but the sudden rise in mortgage rates. We can’t blame Yun for his recent enthusiasm since longer-term fixed rates rose suddenly when the financial markets began to take seriously the possibility of accelerating economic growth rather than a recession this year.

Total existing-home sales^[1] – completed transactions that include single-family homes, townhomes, condominiums and co-ops – waned 2.2% from June to a seasonally adjusted annual rate of 4.07 million in July. Year-over-year, sales slumped 16.6% (down from 4.88 million in July 2022), said the NAR.

“Two factors are driving current sales activity – inventory availability and mortgage rates,” said Yun. “Unfortunately, both have been unfavorable to buyers.”

The rest of the US economy has been recovering with the second quarter 2023 GDP advance estimate growing 2.4 percent, and the Atlanta Fed is now predicting the possibility that third quarter GDP growth could be as high as 5.8 percent.

Most economists are discounting such a possibility, but the possibility of higher growth has put the fear of higher interest rates in their calculations, and the real estate market is particularly affected by interest rate trends.

There is, however, very little inflation to fear, hence I believe bond traders are overreacting. The best inflation indexes show the retail inflation rate a little above 3 percent, down sharply from last year’s high.

Bond traders are causing the 10-year benchmark Treasury bond yield to rise that fixed mortgage rates use as an index. It is also considered to be a hedge against the possibility of higher inflation, and has risen almost 1 percent in the past few months to 4.3 percent, from its low of 0.54 percent in March 2020.

This was the reason for the sudden jump in existing-home sales to almost 7 million units annualized in 2020 (see above Calculated Risk graph). The 30-year conforming fixed rate mortgage fell as low as 3.5 percent, causing the sudden surge in housing sales.

When will the housing sales decline reverse course? Not very soon, according to Calculated Risk’s Bill McBride. “It now seems likely that in a few months existing home sales will fall below the previous cycle low of 4.00 million in January 2023,”

 

FREDnewhomes

Some good news is that sales of new single‐family houses in July 2023 were at a seasonally adjusted annual rate of 714,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development as home builders race to add to the depleted housing stock. This is a huge increase--4.4 percent above the revised June rate of 684,000 and is 31.5 percent above the July 2022 estimate of 543,000.

It is difficult to see other than a continuing housing bottom now. The cure to the housing shortage is the realization by the Fed and bond traders that inflation has been conquered. There’s no reason for inflation to be higher than the current 3 percent, and maybe trend down to the Fed’s 2 percent target in the not-too-distant future.

Harlan Green © 2023

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

"The Housing Recession Is Over!"

 The Mortgage Corner

One should maybe forgive National Association of Realtor’s chief economist Lawrence Yun’s enthusiasm when he exclaimed “the housing recession is over,” because the NAR’s Pending Home Sales rose for the first time in four months. And this at a time when the Fed’s hit to interest rates had so depressed the housing market, contributing to the severe housing shortage.

"The recovery has not taken place, but the housing recession is over," said NAR Chief Economist Lawrence Yun, "The presence of multiple offers implies that housing demand is not being satisfied due to lack of supply. Homebuilders are ramping up production and hiring workers."

The Pending Home Sales Index (PHSI)* – a forward-looking indicator of home sales based on contract signings – rose 0.3% to 76.8 in June. Year over year, pending transactions fell by 15.6%. An index of 100 is equal to the level of contract activity in 2001, said the NAR press release.

The rest of the US economy has been recovering with second quarter 2023 GDP advance estimate growing 2.4 percent. Interest sensitive real estate sales had been hit hardest with the 5.25 percent in Fed rate hikes, and pending sales gives an picture of sales under contract but not yet closed.

FREDnewhomes

I believe Yun’s remarks may be a sign of something more. A housing market recovery has traditionally been the first indication of an general economic recovery, as indicated by the FRED graph of new-home sales. Existing-home sales follow a similar trajectory. New-home sales have ticked up after every recession (gray bars) since 1960, as viewed in the FRED graph. They are up 23.8 percent annually, to 697,000 units over July 2022, and sales were even higher in June when pro-rated annually.

Many other economic indicators are showing recovery in addition to higher Q2 GDP growth, especially consumer spending, which is slowing but gave a boost to second quarter growth.

Even the Federal Reserve has become more optimistic. Federal Reserve Chair Jerome Powell disclosed at Wednesday’s post-FOMC press conference that his staff is no longer forecasting a recession.

“The staff now has a noticeable slowdown in growth starting later this year in the forecast…but, given the resilience of the economy recently, they are no longer forecasting a recession,” Powell told reporters.

Let us hope Yun is right in prognosticating an end to the housing recession, and maybe any recession.

Harlan Green © 2023

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen