Following a dismal spring season and with a bleak outlook for the summer and fall, the housing market is not showing many signs of emerging from its three-year slump.
After a dip late in the previous year, buyers of homes were optimistic going into 2024 that mortgage rates would continue to decrease. However, such expectations were dashed as better-than-expected inflation and economic data cast doubt on when the Federal Reserve may decide to lower interest rates.
For the first time since November, the average rate on a 30-year house loan rose above 7% by April. Many prospective homeowners were compelled to put their house hunt on hold—some indefinitely—
Due to this and record-high home prices. By year’s end, economists predict that mortgage rates will have somewhat decreased. However, a slight drop in rates might not be sufficient to attract buyers and convince homeowners that now is a good time to sell. Here are some major themes influencing the housing market’s performance so far this year and what sellers and buyers might anticipate in the latter half of 2024:
The spring homebuying season was once again a bust.
Typically, over one-third of all homes sold in a given year are bought between March and June. This period is referred to as the spring homebuying season, and it has been declining in recent years.
Sales of previously occupied U.S. homes decreased in the March–June period from a year earlier in 2022 and 2023. This year, sales decreased in March, April, and May, and there are signs that June saw a decline as well.
The average 30-year mortgage rate is currently hovering around 7%, the supply of available homes is historically low, and home prices are at record highs, which contribute to the poor spring sales and the affordability issues that many prospective homeowners confront.
High rates deter homebuyers
As per Freddie Mac, the mortgage buyer, the average rate for a 30-year mortgage is 6.95%. When compared to early July 2021, that is more than twice as high.
Mortgage rates are affected by a number of variables, such as changes in the 10-year Treasury yield, which lenders use as a benchmark when pricing house loans, and the bond market’s response to the Fed’s interest rate policy.
Following certain economic data that indicated slower growth, the 10-year yield, which peaked at 4.7% in late April, has generally declined recently. This might help contain inflationary pressures and persuade the Fed to start cutting its main interest rate from its highest level in more than 20 years.
In June, Federal Reserve officials indicated that they expected to lower their benchmark interest rate at least once this year, citing recent inflation that has approached the bank’s target level of 2%.
However, estimates from economists indicate that the average rate on a 30-year mortgage will continue to be more than 6%.
Not enough homes for sale
The historically low number of available properties is another barrier for purchasers.
The good news is that there were the most available properties at the end of May compared to August 2022, which is encouraging for summertime homebuyers. The bad news is that the number of houses for sale in the country is still far lower than it was before the outbreak.
Before Covid struck, there wasn’t a lot of housing available for purchase in the United States because of more than ten years of below-average new home development and demographic factors that encouraged homeowners to hold onto their properties for longer.
As a result of the significant difference in mortgage rates between now and three years ago (3%) many homeowners who were able to secure extremely low rates have been deterred from selling; this phenomenon is known in the real estate industry as the “lock-in” effect.
The price isn’t right
According to the National Association of Realtors, the national median sales price of a previously inhabited home increased 5.8% in May over the same month the previous year to $419,300, the highest amount ever recorded on data dating back to 1999. It’s also increased by 51% in only the last five years.
However, the rate of price increases is decreasing. According to CoreLogic’s home price index, the United States saw its lowest increase in price since October in May, up 4.9% from a year earlier. By May of next year, the real estate data tracker predicts that the growth in national home prices will have slowed to 3%.
Selma Hepp, chief economist at CoreLogic, stated that “the surge in mortgage rates this spring caused both slowing homebuyer demand and prices.”
As more properties remain on the market for longer, property prices are declining. Price rise has also slowed in metro regions in Florida, Texas, Georgia, and other states where home development has increased recently.
Some economists are concerned that a small drop in mortgage rates without a corresponding increase in the number of available properties may actually work against buyers who are having trouble affording a property by encouraging sellers to raise their asking price.
Chief economist at Redfin Daryl Fairweather expressed concern about what would happen to home prices if rates were to drop. “I think it would spur demand without really spurring supply, at least in the short run,” Fairweather said. “That might cause prices to rise quite a bit.”