Key takeaways
After declining for months, mortgage rates moved modestly higher in October.
In September, compared to the prior month, existing home sales slowed while new home sales rose.
A third quarter rally for real estate investment trusts was sidetracked at the fourth quarter’s start.
In October, a months-long trend of steadily declining mortgage rates reversed course when the average 30-year mortgage, which dipped to nearly 6% by the end of September, climbed to 6.54%.1
September’s existing home sales dropped from August levels, declining to one of the lowest annualized rates on record of 3.84 million.2 “That’s the lowest rate of existing home sales since 2010,” says Rob Haworth, senior investment strategy director for U.S. Bank Asset Management. “It comes down to a lack of inventory. When the average mortgage rate is 3.5% for existing homeowners, many would-be homebuyers choose not to sell their home to take on a new mortgage at close to double that rate.” Notably, in May, the average U.S. monthly mortgage payment reached an all-time high,3 contributing to slower housing market dynamics.
New home sales helped make up some ground, rebounding in September, with a 4.1% gain. That was 6% above the same month one year earlier.4 “Builders can attract a lot of first-time homebuyers to make a purchase since they have no existing mortgage rate to compare to today’s relatively high rates.”
“Today’s mortgage rates reflect higher yields in the bond market, but also a relatively wide premium spread between 10-year U.S. Treasury notes and mortgage rates,” says Haworth. “The wider spread reflects a lack of buyers for mortgage-backed securities.” The yield spread recently dipped, but remains significantly higher than early 2022, when interest rates began trending higher.5
“The combination of rising home prices and elevated mortgage rates means that housing affordability remains a meaningful problem,” says Rob Haworth, senior investment strategy director with U.S. Bank Asset Management.
Home prices reached all-time highs from February through July of this year. However, in August, for the first time since January 2024, home values declined modestly.6
According to the residential real estate brokerage firm Redfin, the median monthly mortgage payment in October 2024 (based on average 30-year mortgage rates and home prices) was $2,587, 4.6% lower than a year earlier.7 “The combination of elevated mortgage rates and higher home prices means that housing affordability remains a meaningful problem,” says Haworth.
Some investors seeking to enhance portfolio diversification turn to real estate investment trusts (REITs). During the same period that higher mortgage rates tightened housing market conditions and negatively affected commercial real estate, REITs dramatically underperformed the broader market. However, recently declining interest rates boosted investor enthusiasm for REITs. For 2024’s third quarter, the S&P Developed REIT index gained 16.40%, compared to 5.89% for the S&P 500 index. By contrast, in recent years and over 2024’s first half, REITs significantly underperformed the S&P 500. However, in October (through October 28), REITs declined again, losing 2.72% compared to the S&P 500’s gain of1.14%.8
Be sure to consult with your wealth management professional to determine when and how real estate investments might be a good fit for you.
Housing prices fell over a seven-month period in 2022 and early 2023 and housing demand dropped when mortgage rates first began to rise. However, housing prices recovered to new record levels in late 2023. After declining in three consecutive months in late 2023 and early 2024, housing prices recovered beginning in February 2024 and reached new all-time highs in consecutive months from March through July 2024. In August, housing prices modestly declined.5 Still, homebuyers must deal with dual challenges of still-elevated mortgage rates and rising home prices.
The decision to purchase a home may depend on many factors, including your own personal priorities and financial situation. Some people may require a larger living space or have a desire to settle in a specific community. Those priorities may take precedence over the current mortgage rate environment. “Some people will also buy the home that appeals to them regardless of mortgage rate conditions,” says Rob Haworth, senior investment strategy director at U.S. Bank Wealth Management. “Finding a different home down the line does not automatically substitute for the preferred house you find today.” While in an ideal world, mortgage rates would be more affordable, each potential homebuyer must determine the right time to purchase a house.
Interest rates began moving up in 2022, and mortgage rates followed suit. Today’s mortgage rates are close to double the rates that existed in 2021.1 That likely means that homebuyers are required to make higher monthly mortgage payments. This caused some potential homebuyers to step back from the housing market. At the same time, it led some current homeowners who potentially were interested in moving to a different house to hold off doing so, and preserve their current, low mortgage rate. Therefore, housing activity has slowed significantly, attributable primarily to the recent change in the interest rate environment.
As interest rates change, learn what the ripple effects across capital markets may mean for investors.
Investing in a real estate investment trust (REIT) is a way to diversify your portfolio. Here's a look at how to invest in REITs and diversify your portfolio into residential and commercial real estate.
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