Lack of inventory keeps home sales grounded

The fall in mortgage interest rates gave mortgage applications for home purchase a boost earlier this year, but a lack of inventory meant that did not translate into home sales. (See Chart 1.) Total single-family sales declined by 0.5% m/m in June. A sharp fall in the 10-year Treasury yield means the 30-year mortgage rates is set to fall to 3.8% over the next couple of weeks, which will give a further lift to refinancing demand. A slowing economy will weigh on home purchase demand, but that will support the rental sector. The number of rental households increased by 600,000 in the year to the second quarter, and that increase in demand helped rental growth accelerate to a two-year high in June.