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.
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.
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?
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 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.