‘Welcome news’ for buyers as mortgage rates, home prices fall 

The persistent housing market slowdown is having predictable impacts on home prices and inventory, both of which hit significant milestones this week.

The median home sale price has begun ticking down, falling 0.1% year-over-year to $389,601 for the four weeks ending Oct. 25, according to Redfin's latest rolling four-week report. The past two weeks mark the first time in three years that this particular report has found a decline in the median sale price.

Mike Simonsen, chief economist at Compass, has also noticed a recent drop in home prices. In his weekly YouTube update, Simonsen estimated that the national median home sale price was $392,000, close to 2024 levels and down 1.7% compared to a year ago.

Whether these price drops will continue is unclear. Historical trends suggest that rising mortgage rates don't necessarily produce immediate national price declines, according to Mark Fleming, chief economist at First American. "Higher mortgage rates can put pressure on home prices, but the economy, household incomes and the number of homes for sale all play a role in what happens next," Fleming said.

Inventory returns to pre-pandemic norms

Nationally, inventory has inched up ahead of 2019 levels, the time of the last "normal" housing market before the Covid-19 pandemic hit, Simonsen said.

What's also notable, he added, is that inventory-starved parts of the country, such as the Northeast and the Midwest, are seeing relief. "There are some sellers in these markets who are going to be surprised at how abrupt this change is."

Mortgage rates ease

Homebuyers did get a small dose of good news this week: According to Freddie Mac, the 30-year fixed-rate mortgage averaged 7.24% as of Oct. 29, down from 7.32% one week ago. Rates have moved lower in the wake of the Fed's decision to hold interest rates steady, and an Oct. 29 tech selloff in the stock market also fueled the downward shift, according to Mortgage News Daily.

Still, mortgage rates are much higher than a year ago, when the weekly 30-year rate sat at about 6.17%. While this week's relief brings "welcome news to anyone involved with the housing market," the shift may not have much of an impact this close to the winter holiday season, said Joel Berner, senior economist at Realtor.com.

Mortgage applications reverse declines

After some significant declines over the past few weeks, mortgage applications rose 3.4% for the week ending Oct. 23, though loan application volume remains well below that recorded last year, according to the Mortgage Bankers Association (MBA).

Refinance applications fell 61% year-over-year and purchase applications dropped 18%. However, the adjustable rate mortgage trend continues to gain steam, with the ARM share of all loan applications at 11.3% — the highest share in over a year, according to Joel Kan, MBA's VP and deputy chief economist.

Inflation remains troublesome

The Federal Reserve's hope that its September interest rate hike might cool inflation was somewhat dashed this week as new inflation data was released. The Personal Consumption Expenditure Price Index (PCE) came in at 3.6% for September, the U.S. Bureau of Economic Analysis reported on Oct. 29. The PCE is now at its fastest pace since May and remains well above the 2% target level.

More economic data will be released before the Fed meets again in December. However, the inflation data released Thursday may bolster investor expectations of an imminent short-term interest rate hike.