It’s not that simple because one needs to factor in home prices. But we can look in isolation.
Despite mortgage rates declining a full percentage point from 7.26 percent in mid-January to 6.29 percent in mid-December, existing home sales have gone virtually nowhere.
In November of 2022, seasonally adjusted existing-home sales were 4,120,000 annualized. In November of 2025, seasonally adjusted existing-home sales were 4,130,000 annualized.
The National Association of Realtors seasonally adjusts home sales, but for three straight years we see seasonal adjustment peaking in February.
Existing-Home Sales vs Mortgage Rates
At first glance it might appear that home sales are fluctuating a bit with mortgage rates. But check out the red and blue highlights.
The red highlight shows the mortgage rate in January of 2025 was 6.96 percent. The blue highlight shows annualized existing-home sales of 4.27 million, a relative spike.
Existing home sales are recorded at closing so the applicable interest rate was a month or 45 days earlier.
Interest Rate Nonsensitivity
In the K-shaped economy, it appears there are approximately 4 million buyers who are not interest rate sensitive, at least in a range of interest rates between 5 and 7.5 percent.
Other factors are in play, including price and how well the stock market is doing. So it’s not just a matter of interest rates.
But as long as the stock market is rising, interest rates are in this wide band, and the economy is not in recession, there will be about 4 million transactions.
Existing-Home Sales Flounder at the Same Level for Three Years
Earlier today I noted Existing-Home Sales Flounder at the Same Level for Three Years
Existing-home sales show no signs of life despite falling mortgage rates.
“Existing-home sales increased for the third straight month due to lower mortgage rates this autumn,” said NAR Chief Economist Lawrence Yun. “However, inventory growth is beginning to stall. With distressed property sales at historic lows and housing wealth at an all-time high, homeowners are in no rush to list their properties during the winter months.”
Well, that didn’t happen. NAR seasonal adjustments are garbage. For four consecutive years the NAR shows seasonal increases between October and February. So, expect another couple of months of increases then declines.
Yun failed to mention home prices or the stock market, but he did mention median sales price.
The “Median Sales Price is $409,200, up 1.2% from one year ago ($404,400) – the 29th consecutive month of year-over-year price increases,” according to the NAR.
The NAR makes no attempt at all to seasonally-adjust prices. And that compounds the comparison.
To get a realistic sense of whether home prices are rising or falling, however, what we really need to see are repeat measures of the same home over time.
I am working on a post to incorporate the Fed funds rate, real interest rates, and Case-Shiller national home prices to tie everything together.
Meanwhile, the Fed created a big mess for which it has no answer outside of a hard recession that plunges home prices to modestly affordable levels. Asset prices in general may need to drop as well.
Lowering interest rates in isolation may do little but increase the bubble.
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In the allegedly best economy in history, people struggle with food, shelter, property taxes, and homeowner’s insurance.
It’s not that simple because long time residents might be subject to large capital gains taxes, depending on where they live. In my neighborhood, several homes remain vacant while their owners wait for the grim reaper in a nursing home or assisted living center. At the time of their death, their homes will experience a stepped up basis and their heirs will not have to worry about estate taxes because the exemption is so large.
market supply rarely offers much value…. qualifying for the loan for a home with value requires a person of value to attain it
the good stuff is under lock and key and controlled by those that understand value.
the price of admission has gone up
New-home builder, Lennar, just reported that deep discounts have been offered to move inventory. The downward trend in prices is underway. Most article I have read recently have buyers complaining about prices being too high, not interest rates.
Homebuilder Lennar Cuts Prices by 10% Amid Weak Demand
re: “no answer outside of a hard recession”
You drain reserves while driving the banks out of the savings business. The 1966 Interest Rate Adjustment Act is the paradigm. I.e., you drain the money stock while increasing the velocity of circulation (the opposite of the FED’s paths).
Lending/investing by the banks is inflationary (expands both the volume and turnover of new money). Lending/investing by the nonbanks is noninflationary (other things equal). With nonbank lending/investing, there is an increase in the supply of loan-funds, but no change in the money stock, a velocity factor, where pooled savings are matched with loans and investments.
A mortgage below 4% may be necessary to increase the supply of homes, given many are holding mortgages in the threes.
That would free those trapped by their low interest mortgage to move. It would also trigger home inflation again. The bottom tier of our societies earners are solidly blocked from home ownership.
Lower interest rates will not trigger affordable supply!
I think you have demonstrated that mortgage rates have lost their influence on home sales. It’s been overshadowed by something else. I would suggest that it has been overshadowed by socioeconomic instability.
Even the upper branch of the k-shaped recovery is starting to worry as money is cycled out of the American economy into the global economy and for good reasons.
From where I am sitting, there is a greater concern that a new homeowner will be able to continue owning a home. There are huge headwinds of inflation, job, uncertainty, industry, uncertainty, thanks to government influence, and even property taxes.
I believe there’s another consideration. The housing prices in 2007 were clearly in a bubble and housing got all of the attention. Today, houses are too expensive and the market is so fucked that it’s not going to perform well outside of a deep recession. Even then it won’t be too private homeowners.
All the attention of where to throw your money to get rich quick is now focused on AI with hints of crypto. That’s where all the money is, that is what will be most sensitive to interest rates. That’s where the speculators are driving the activity and prices. They have left the real estate industry
Low rates aren’t a significant factor. Prices need to drastically decrease. That won’t happen until boomers die and/or people need to sell their home. There aren’t as many people being born so there are less people to buy a home. In addition to the price of the home people need to afford taxes, insurance and maintenance. Even if you own a home mortgage free the cost of owning a home is expensive in relation to incomes.
Need to examine housing starts. There will be decline in housing starts for areas that do not forecast any population growth.
For example, examine states like Connecticut, and its housing inventory and average and median age of single family homes.
In Bay County and Panama City Florida, they are working to diversify the economy to ensure there is at least some growth.
I really don’t think it’s an issue of just waiting for the boomers to die. How many of those houses do you think will be on the market? How many of those houses do you think will be purchased by a corporation and used as rental property?
Many boomers have two homes and sometimes multiple homes (if you include rental or income properties). They will be downsizing and their children will be selling off or moving into their retirement homes on the water or warmer climates.
The boomer dream retirement was a home on a lake or the ocean in the north and a condo on the beach in Florida.
There will be hundreds of thousands of 5,000 sq ft waterfront homes sitting on 200 feet of prime waterfront that have tax resets to $40,000 to $100,000 per year. Not enough well positioned younger people to absorb them in many areas.
That said, waterfront seems to defy gravity at the top end of the price range.
And yet the USA population continues to rise year after year so there are in fact plenty of people to buy a home.
The notion that populations are falling is total bullshit. Birthrates are falling for some demographics, but overall population is continuing to explode on a global basis.
We’re only discussing the US. Population is only increasing due to ILLEGALS entering the US.
The answer is 1.375%. If rates dropped to where a buyer could get something that starts with a 4 for one point, a few potential sellers (those who would still need a mortgage for their next home) would put their house on the market. It’s not like things would be off to the races, though, since they would be chasing inflating prices. As that reality became publicized, inventory would shrink again. The Covid era errors will take more years to dissipate. Fannie Mae’s 2026 loan limit for most of the country is $832,750. That correlates to a $1,040,000 home with 20% down.
Only buyers want a price correction. The NAR doesn’t. Municipalities sure don’t. Sellers don’t. homeowners sitting on enormous equity gains don’t. Banks don’t. Leveraged entities holding mortgage products don’t. Home builders don’t.
Housing price drop or deflation means a lot of potential buyers remain on the sidelines and wait for a further drop.
Housing decreased about 25% to 30% from its all time high during the Great Recession of 2008-2010, and the S&P 500 crashed about 56%.
I hope there is no deflationary spiral but I doubt it given what the Federal Reserve would do to prevent that.
Ideally for every 1% increase in the 30 yr mortgage rate there should be a 10% drop in price based on mortgage lending standards. Figure peak price was in 2022 when the rate was 3%, and current rate is 6% so that mean a 30% drop in price from 2022.
However, household income has increased by about 20% since then so figure a 30% x 0.8, or 24% decrease in price.
Here in Florida panhandle, townhomes such as in east end of Panama City Beach already have decreased 20% from all time highs set in 2022. Townhomes are selling though as we have some sales volume at 20% discount, while rents for townhomes are around 2021 price levels.
As more people lose their jobs to AI and robots, it is inevitable that deflation will occur.
This will be impossible to fight with normal economic moves by the government and the FED other than prohibiting AI/robots. WIll they take this step?
No, but a designer pandemic might work to reduce the global population.
Whole groups of people have been trained to ignore vaccines.
😉
Mish, are you going to do a post soon on silver and the relentless new ATHs it is hitting?
I don’t know what I can say about silver or gold other than what I have already said about gold.
Congress and the Fed are debasing the dollar.
What’s interesting is Bitcoin is no longer following. Is Bitcoin finally toast?
I wonder how many homes have been purchased with BC/crypto and how many sellers still held onto the crypto and got hosed when BC crashed?
There is quite a bit of new news on the silver market such as the new futures trading center in Guangzhou China which focuses on three precious metals for industrial use:
Silver was just added and reportedly 20,000,000 ounces were taken off the inventories of the COMEX and London markets to create a deliverable inventory. China and much of Asia is rapidly adopting solar and there are structural shortfalls projected going forward.
IMO the entire Precious Metals market is changing fast and discussion of those shifts would be well timed.
Potential Topics:
Tons more to explore…
Lots of silver buying and stockpiling or hoarding (for electronics, solar panels, electric vehicles, electrical wiring, etc), and maybe also driven by AI warehouse boom. Its overheated and likely will cool in 2026.
Look at Oracle stock as far as a bank denying its loan for a major AI center. Its the 3 amigos, Nvida chips, OpenAI software, and Oracle as the systems integrator.
Doesn’t matter what mortgage rates are if people don’t have jobs!
Property taxes are also growing in significance, with residents in nearly half of U.S. states paying over 1% per annum of the assessed value. A lot of local governments don’t want prices to come down.
I’d gladly take 1%.
I pay about $1700 a year for property tax on a 3 bedroom, 2.5 bath, 2 car garage townhome in Panama City Beach, with the county stating the “market value” is around $255,000 which is what these townhomes are currently selling (within $255,000 to $265,000 range, after peaking in 2022 around $333,000).
The “assessed value” is around $175,000 because of all the discounts like homestead exemption.
But my HOA regular assessment is around $385 a month in 2026 which covers the HOA infrastructure (roads, sidewalks, storm water drains, street lights, etc) in addition to our roof and exterior maintenance, landscaping, clubhouse, gym, pool, garbage, gated community security, building insurance (“drywall out”), reserve funding, etc.
With the decrease in the regular assessment from 2025 to 2026 of 8%, I calculated the regular assessment has only increased about 5% a year since 2013, and our HO-3 insurance premium is only $1600 for 2026 decreasing from $2300 in 2025 since we switched to Ovation Insurance from Olympus Insurance.
I also live in Florida (West Palm) and the tax rate is about 2% when you include school tax (you pay state + school as one assessment as each is roughly 1% where I live).
Are you also over 65? Trying to figure out how you are playing 1% instead of 2% as I know you get a big discount once you are 65+.
I am not 65. I am in my mid 50’s.
And I pay a total of $1700 in Bay County Florida property tax per year which includes all the different categories like school district, general fund. storm water, mosquito control district, etc.
I live in an area of the country where prices have been rising considerably the last few years because there is no inventory and everything worth buying gets bid up (Connecticut/Massachusetts). It’s not a depressed market here at all, it’s just locked up because people with 3% mortgages do not want to give them up.
But lower interest rates are not the answer, because that would just cause prices to go even higher in the many places where housing is still going up.
I think we need a few more years of 6-7% range mortgage rates to get the holdouts to give up and accept the reality of 6-8% mortgage rates like we had in the 80s and 90s back when inflation was as low or lower than it is today.
Inflation is still out of control and there’s no reason to fuel the fire, but the Fed has other ideas. It’s pretty clear they want to start up the easy money train again and they are just warming up right now.
Prices too high.
And lower interest rates, unless there is a recession or stock market crash, will prop up prices.
Absolutely true, Low interest rates are exactly what lit the home appreciation fire.
“Owning things” that appreciate faster than inflation is good…