Mortgage Rates Drop, But Homebuyers Still Say 'No Thanks'– Here's What's Really Behind The Buyer Strike

The recent drop in mortgage rates hasn’t sparked the homebuying surge many industry experts anticipated. Instead, potential buyers are holding firm, contributing to what some analysts are calling a “buyer strike” in the housing market.

Nick Gerli, CEO of Reventure Consulting, has been monitoring the trend. In a recent YouTube poll conducted by Gerli, an overwhelming 91% of 5,000 respondents indicated that lower mortgage rates wouldn’t increase their likelihood of purchasing a home.

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Gerli noted that sentiment is echoed in broader market data. The University of Michigan’s survey on homebuying sentiment reached a record low in July, with 87% of Americans saying it’s a bad time to buy a home. The figure surpasses the pessimism seen during the early 1980s when mortgage rates peaked at 18%.

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“We’re dealing with unprecedented negative sentiment around the housing market,” Gerli said on X (formerly Twitter) last week. He noted that the long-term average of those viewing it as a bad time to buy is typically around 31%.

The reluctance of buyers persists despite the median U.S. monthly housing payment falling to $2,558, a 1.3% decrease from last year, according to recent data from Redfin.

Central to the standoff is the issue of home prices. The median U.S. home sale price stands at $388,085, up 3.7% from the previous year and just below the all-time high set in July, Redfin noted. That price resilience, partly due to limited inventory, has created a deadlock between buyers and sellers.

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Gerli points to historical data showing that the current market represents the largest housing bubble in 134 years when adjusting for inflation. “From 1890 to 1990, inflation-adjusted home prices never breached more than 20% above the long-term norm,” Gerli explained. “Everything changed in the 2000s. What changed was Federal Reserve manipulation of interest rates and money printing.”

Years of low interest rates and quantitative easing following the 2008 financial crisis and the pandemic created conditions for home prices to surge. Now, with monetary tightening having been in effect for some time, the market is paying for it, Gerli said.

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Sellers are sitting on substantial equity – an estimated $32 trillion as of 2024, more than double the peak of the 2006 bubble, the Reventure CEO said. That cushion has made many reluctant to lower prices. Buyers, on the other hand, view current valuations as inflated and unsustainable.

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The possibility of a recession adds another layer of uncertainty. A sharp rise in unemployment could trigger forced selling and potentially lead to substantial price declines. Gerli highlighted the historical correlation between unemployment rates and mortgage defaults, suggesting a potential increase in housing inventory that many economists may be overlooking.

It's "easier for sellers to simply give up equity, prices to drop 20% and the market to rebalance," Gerli said. However, he acknowledged that seller psychology makes such a straightforward resolution unlikely in the short term.

For now, the housing market remains in a state of tension, with traditional models struggling to predict its next move. 

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