The U.S. housing market has faced a trio of challenges in 2024: tight inventory, escalating home prices, and elevated mortgage interest rates. So, what will the final months of the year deliver? Read on for predictions from industry experts and leading trade groups.
Mortgage interest rates
From historic lows to decades-old highs—this is the journey undertaken by mortgage interest rates these past two years. The sharp increase in rates pushed homebuyers and sellers alike to the sidelines. Both groups have been asking the same question throughout 2024: When will rates return to more affordable levels?
The good news is June’s Consumer Price Index data1 showed that inflation was down, boosting hopes that the Federal Reserve will soon lower its benchmark rate. During a recent speech before the Economic Club of Washington, Fed chair Jerome Powell did not set a timeline for lowering the benchmark rate. However, according to the CME Fedwatch Tool, most monetary policy watchers project that the central bank will lower the benchmark rate at its September meeting.
As you know, when the Fed slashes its benchmark rate, mortgage interest rates typically follow suit. Both Fannie Mae and the National Association of REALTORS® (NAR)2 forecasted interest rates falling to 6.7% by year’s end. The Mortgage Bankers Association3 offered a slightly more optimistic prediction: 6.6%.
Home prices
According to the NAR’s most recent Existing Home Sales report,4 the median sales price of a home climbed 4.1% annually to a record high of $426,900. Additionally, all four major U.S. regions posted price increases.
On the plus side, NAR Chief Economist Lawrence Yun does not expect further large price accelerations in the months ahead. “Supply and demand dynamics are nearing a balanced market condition,” he stated.
Additionally, Yun said back in the spring5 that he foresees no major changes in purchase prices on a nationwide level in 2025. According to his forecasts, home prices will fluctuate roughly 5% one way or the other.
Home sales
June’s Existing Home Sales report also revealed that total sales—completed transactions that include single-family homes, townhomes, condominiums and co-ops—slumped 5.4% for both the month and the year.
“We’re seeing a slow shift from a seller’s market to a buyer’s market,” Yun said. “Homes are sitting on the market a bit longer, and sellers are receiving fewer offers.”
Industry experts believe home sales activity will pick up as inflation continues to ease and the Fed starts lowering its benchmark rate. However, many buyers—particularly first-timers and those from low-to-moderate income brackets—will likely be left out in the cold, largely due to elevated home prices.
Housing inventory
The NAR reported that total housing inventory at the end of June was 1.32 million units—an increase of 3.1% from May and 23.4% from one year ago. Meanwhile, unsold inventory was at a 4.1-month supply at the current sales pace, up from 3.7 months in May. The last time unsold inventory posted a four-month supply was May 2020.
Despite this encouraging data, inventory shortages continue to plague most U.S. metros—and likely will for the remainder of 2024 due to several factors. The #1 reason is many homeowners are “locked in” to their affordable interest rates, which makes them unlikely to purchase new homes with higher rates. Another factor is lagging new home construction. According to the latest New Residential Construction report,6 single-family homebuilding fell to an eight-month low in June.
Tips for buyers and sellers
Do you have buyers and/or sellers looking to jump into the housing market before the year ends? Compiled here are helpful tips for both groups.
For buyers:
· Temper expectations—and be flexible. Searching for a home often takes months, not weeks. A buyer should set aside plenty of time to find the right home at the right price instead of settling for a quick purchase they may later regret.
· Determine needs and wants. Here is a helpful approach to take: After separating needs from wants, the buyer can use the list of needs (e.g., number of bedrooms, number of bathrooms, a certain-sized yard, etc.) to determine which homes to visit. From there, the list of wants (e.g., high-end finishes, landscaping style, etc.) can serve as a tiebreaker when deciding on a preferred property.
· Expand your search. A buyer should consider looking outside of their ideal neighborhood or even their desired community. Broadening the search area to include towns or counties that surround a preferred location may help them find a property with a more affordable price.
For sellers:
· Make necessary repairs and updates. Even a home in need of minor repairs can put off a buyer. A seller should address plumbing and electrical problems, and fix heating, ventilation, and AC issues.
· Be patient and stand firm. Since housing inventory remains tight, a seller can take their time with the process. Also, acting too quickly and taking a first offer can result in a decision they later regret.
· Know when to reassess. If a seller is frustrated with the current conditions and not in a hurry to sell, they may want to consider reentering the market when conditions are a bit more favorable.
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1“Consumer Price Index—June 2024,” U.S. Department of Labor, last updated July 11, 2024.
2“Mortgage forecasters predict rates at end of 2024—Newsweek, National Association of REALTORS®, last updated July 9, 2024.
3“Mortgage forecast: Will rates go down in 2024?”, U.S. News & World Report, last updated July 2, 2024.
4“Existing home sales slipped 5.4% in June; median sales price jumps to record high of $426,900,” National Association of REALTORS®, last updated July 23, 2024.
5Dina Cheney, “Housing market predictions: The forecast for the next five years,” Bankrate, last updated April 11, 2024.
6“Monthly new residential construction, June 2024,” Census.gov, last updated July 17, 2024.
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