Unveiling the Dynamics Behind Existing Home Sales: A Deeper Dive into Market Trends

As we delve into the recent surge in existing home sales, a closer examination reveals an intriguing correlation between mortgage rates and transaction volumes. The real estate landscape has undergone a significant shift, reminiscent of a similar scenario around this time last year. A substantial drop in mortgage rates has played a pivotal role in reshaping market dynamics, setting the stage for a potential resurgence in December and January.

A Year of Mortgage Rate Movements

Around late October 2022 to early February 2023, the real estate market witnessed a notable decline in average 30-year mortgage rates, contributing to a remarkable 14% month-over-month improvement in existing home sales in February 2023. Presently, history seems to be repeating itself, but with even more significant and rapid changes.

Unprecedented Drop in Mortgage Rates

The decrease in mortgage rates this year has surpassed the fluctuations observed last year. Over the span of just two months, average 30-year mortgage rates plummeted by a remarkable 1.5% (150 basis points), characterized by Matthew Graham of Mortgage News Daily as "the biggest drop in a 45-day window that we've ever measured." This rapid and substantial decline lays the foundation for anticipating a positive impact on transaction volumes.

Bottoming Transaction Volumes

Building on the historical context of last year's correlation between mortgage rate movements and existing home sales, the current data suggests that transaction volumes for existing homes have likely already hit their low point.

The expectation is that the months of December and January will witness a further uptick in sales, fueled by the recent plunge in mortgage rates.

Insights from Lawrence Yun, NAR's Chief Economist

Lawrence Yun, Chief Economist at the National Association of Realtors (NAR), provides valuable insights into market dynamics. He highlights that the recent weakness in existing home sales primarily reflects the buyer bidding process in October when mortgage rates reached a two-decade high. However, a notable turn upward is anticipated as mortgage rates have dramatically decreased in the subsequent weeks.

Time Lag in Home Closings

Yun's observations underscore the time lag involved in real estate transactions. Most home sales that closed in November were initiated in October when mortgage rates were substantially higher. With a typical closing period of 1.0–1.5 months, the impact of lower rates is expected to manifest more prominently in the coming months.

The interplay between mortgage rates and existing home sales continues to shape the narrative of the real estate market. As we navigate the closing months of the year, the anticipation is high for a resurgence in transaction volumes, driven by the most significant and rapid drop in mortgage rates on record.

Keep a close eye on the evolving trends, as December and January are poised to showcase the true impact of these market dynamics on the real estate landscape.