Homebuyer demand is taking a nosedive in the summer of 2024, coinciding with what is typically the peak season for new listings and price reductions. Mortgage applications for purchasing homes have dropped 13% year-over-year in the last week of July, and are down 50% from pre-pandemic levels. Despite the anticipation of rate cuts by the Federal Reserve, potential buyers remain largely indifferent.
Nick Gerli, a prominent US-based real estate analyst, highlighted the gravity of the situation. He pointed out that buyers are showing no enthusiasm for rate cuts, which traditionally spur interest in the housing market. “I can’t stress how consequential this is,” Gerli tweeted. “Buyers seem completely unimpressed with the prospect of rate cuts. It doesn’t seem like it’s moving the needle at all to get buyers back into the market.”
Realtors, mortgage brokers, and real estate companies are eagerly awaiting the Fed’s rate cuts, believing they will reignite buyer interest. However, Gerli suggests an alternative scenario where these cuts fail to stimulate the market, potentially leading to prolonged suppressed buyer demand until home prices decrease significantly. “This is normally what happens in the downturn of a real estate cycle,” he remarked.
One indicator of this declining demand is Redfin’s homebuyer demand index, which measures requests for home tours and buying services. According to Gerli, this index is down 16% over the past year and continues to fall despite lower mortgage rates. Sellers are maintaining high prices, banking on a swift market recovery post-rate cuts, while some prospective sellers are holding off on listing their properties, hoping for improved conditions.
The reality might be starkly different. If it becomes clear that rate cuts won’t revive the market, there could be a significant shift. Sellers might be forced to lower prices to attract buyers. Gerli underscored this point by noting that inflation-adjusted home prices are at their highest level on record, surpassing even the heights of 2006. “Homebuyers intuitively know this, which is why they are unimpressed by the idea of the Fed cutting rates,” he explained.
As the real estate market navigates these uncertain waters, the coming months will be crucial in determining whether buyer demand can recover or if the market will continue to struggle. Gerli’s insights paint a picture of a market at a crossroads, with potential homebuyers waiting for prices to drop before making a move.