National Housing Market Outlook

Falling Mortgage Rates Lift Home Sales

Alex Thomas photo

Alex Thomas

February 16, 2024

Builders report unusually strong sales in December and January as mortgage rates fall. The resale market will likely follow.

The holidays came early for builders and the resale housing market. As Fed commentary steadily grew dovish, mortgage rates plunged -100 bps from early November to year’s end. Mortgage rates have been hovering in the mid-6% range for weeks, as shown below in Optimal Blue’s weekly purchase mortgage loan lock data. The rule of thumb is that every -1% drop in rates equates to a -10% drop in monthly payments.

The result of improved affordability has been predictable: new home sales popped in December and January, and resale sales have begun to pick up, too, as seen in Optimal Blue’s data.

Happy holidays for builders

The mortgage rate drop brought some early holiday cheer to housing in December and January, typically some of the slowest months for new home sales. Builders reported 3.3 sales per community in January, +10% higher than the prior year and +38% higher than the long-term average for January.

We’ve reported on the popularity of mortgage rate buydown programs, which can often save buyers hundreds of dollars on monthly payments. With mortgage rates in the mid-6% range, builders can more easily buy down rates to 5.5% or below. We have shown that this is the magic mortgage rate for getting potential buyers off the fence.

As Optimal Blue’s weekly data shows, the share of loans locked in at rates under 5.5% in San Antonio, TX, rose to a staggering 46% by early February, a significant increase from the 29% we reported in early December. San Antonio is a large market for builders, and their rate-buydown programs have produced the bulk of the loans locked in at under 5.5%. We expect the new home market to keep outperforming the resale market in sales volume while mortgage rates stay below 7%, even as mortgage rates remain elevated relative to recent history.

Resale market thawing

After months of low sales volumes due to a lack of sellers, leading indicators of existing home sales are starting to bud. Our survey of over 1,000 real estate agents we fielded in early February captured an improvement in sentiment: 55% of agents expect strong sales over the next six months, up from just 20% in October.

Don’t expect existing home sales data to rise quickly, though: most freely available data sources report existing home sale closings, which often lag purchase activity by multiple months. This is why NAR reported a decrease in month-over-month sales volume in December. Using timelier data like Optimal Blue’s loan lock database, we can see an increase in activity due to lower rates.

We still have a long way to go before the resale market returns to normal. Agents tell us that sellers are waiting for rates to drop even further before listing, which will keep sales muted until the Fed starts cutting interest rates. The Fed has signaled that they expect to cut interest rates by roughly 50 bps in 2024, though the timing of cuts is uncertain and subject to change as fresh macroeconomic data is released.  

We’re watching you, economy.

While mortgage rates strongly influence housing demand, they are far from the only relevant factor. History shows that when the economy is otherwise healthy, sales volumes tend to move inversely with mortgage rates.

But external factors can warp this relationship. Although our base case for the economy does not include a recession, we haven’t ruled out that possibility entirely. 

We track more than 400 leading economic and housing market indicators each month in our US Housing Analysis and Forecast report, which we use to inform our thesis and forecasts for the next several years. For more information, get in touch with our Client Services team.

Our research and consulting teams are helping clients unlock new insights to better navigate the current environment. Our research team helps for-sale, for-rent, and building products executives and investors cost-effectively stay on top of quickly changing market conditions, and our consulting team applies this knowledge to specific property and strategy decisions.

Optimal Blue is the market leader in mortgage secondary marketing technology.

The company facilitates transactions among mortgage market participants through its Marketplace Platform, actionable data, and technology vendor connections. The platform supports a range of functions for originators and investors to automate and optimize core processes related to product, pricing, and eligibility, hedge analytics, MSR valuation, loan trading, social media compliance, and counterparty oversight. The company’s data services provide granular insights on mortgage pricing and trading in real time, as well as competitive insight for originators and investors to benchmark their pricing, volumes, and more.

The company’s premier products are used by nearly 70% of the top 500 mortgage lenders in the U.S. For more information on Optimal Blue’s end-to-end secondary marketing automation, visit OptimalBlue.com. 

Building Market Intelligence™

Every week, we deliver analysis to over 40,000 subscribers with our Building Market Intelligence™ newsletter. Subscribe to our weekly BMI newsletters to stay current on pressing topics in the housing industry.

About The Author

Alex Thomas photo
Alex Thomas
Senior Research Analyst, Macro
Alex assists our research team in tracking macro-level economic and housing trends and data. He also helps cover the fix-and-flip space.

Contact Us

If you have any questions about our services or if you would like to speak to one of our experts about we can help your business, please contact Client Relations at clientservices@jbrec.com.

Products and Services Mentioned

green check icon

Research Membership

Our research services enable our clients to gauge housing market conditions and better align their business and strategic investments in the housing industry. We provide a thoughtful and unique holistic approach of both quantitative and qualitative analysis to help clients make informed housing investment decisions.
green check icon

Real Estate Consulting

Our experienced team of consultants helps clients make sound housing investment decisions. We thrive on their success and work with many clients over multiple years and numerous projects.
green check icon

Metro and Regional Housing Package

An overview of major housing and economic trends, as well as forecasts across 100 MSAs nationwide. The information in this subscription package provides a complete picture of housing supply, demand, and affordability through local insight, proprietary surveys, and extensive data analysis.

Latest Insights

Unlocking the Potential of Generative AI and Large Language Models for Your Business
Dear Consultant: How do we get more inventory so that the housing market has more slack?
Busting Gen Z Myths—What the Housing Industry Needs to Know