Demand unresponsive to lower mortgage rates

The 30-year mortgage rate has dropped to its lowest level since late 2016, but that has not given much of a boost to home demand. Indeed, mortgage applications for home purchase dropped back over July and August. (See Chart 1.) A lack of inventory, as well as evidence that banks are tightening lending standards, help explain subdued demand. But tight supply is good news for homebuilders, and single-family building permits increased for the third month in a row in July. Subdued home sales will also support rental demand, although a healthy supply pipeline and slowing economy mean rental growth is set to drop from 3.8% y/y in July to 3.6% y/y by the end of the year.