Morning Market Brief: May 30, 2024

Higher mortgage rates weighing on US real estate?

The US real estate market appears to be weakening. Mortgage rates and prices have ticked higher, which has put more pressure on potential purchasers. Real estate market activity has moderated in recent months, suggesting US consumers could be feeling the pinch from tight financial conditions.?

• The Mortgage Bankers Association of America (MBA) announced that mortgage applications in the US dropped by 5.7% over the week ended May 24. This was the first decline since the last week of April, suggesting demand has lost some momentum with rates expected to remain relatively higher for longer.
• Following three straight weeks of declines, mortgage rates increased over the same week. MBA says the rate on a 30-year fixed-rate mortgage edged higher to 7.05% from 7.01% in the previous week. Mortgage rates have not finished a week sub-7% since March 29. Comments and statements from the US Federal Reserve Board (Fed) in recent weeks have suggested rates might stay higher for longer. A rate cut might not come as early as this summer.
• Last week, the National Association of Realtors reported that sales of existing homes fell for a second straight month in April, declining by 1.9%. While inventory increased, it remains relatively muted by historical standards. Demand also remains muted with high mortgage rates and elevated home prices weighing on potential purchasers.
• The tight real estate market conditions have helped push prices up. The S&P CoreLogic Case-Shiller 20-City Composite Home Price Index rose by 7.4% year-over-year in March, which was its largest annual increase since October 2022.

When the Fed does begin lowering interest rates, it should help bring down mortgage rates, which could ease the financial pressure on potential purchasers. Canada’s real estate market activity appears similar to that of the US right now. Rates and prices are elevated, impacting activity, but the Bank of Canada is widely expected to begin lowering interest rates relatively soon.

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