LOS ANGELES (AP) — The housing market shows little sign of emerging from its three-year doldrums after a disappointing spring and amid a bleak outlook for the summer and fall.
Homebuyers headed into 2024 with optimism that mortgage rates would fall further after a drop late last year. But those hopes faded as stronger-than-expected data on inflation and the economy clouded the timing of a possible rate cut by the Federal Reserve.
In April, the average rate on a 30-year home loan exceeded 7% for the first time since November. This, coupled with record home prices, has forced many would-be homebuyers to put their search for a home on hold — some indefinitely.
Economists predict that mortgage rates will decline modestly by the end of this year. But a small drop in rates may not be enough to attract homebuyers and persuade them that it’s a good time to sell.
Here’s a look at the key trends behind the real estate market’s trajectory so far this year and what home buyers and sellers can expect in the second half of 2024:
The spring home buying season was a bust — again.
On average, more than a third of all homes sold in a given year are purchased between March and June. This is known as spring home buying season, and it has been depressing for the past few years.
Sales of previously occupied homes in the US fell in the March-June period year-on-year in 2022 and 2023. Sales declined in March, April and May of this year, and indications are that June also saw a downturn.
The weak spring sales are a reflection of the affordability challenges many homebuyers face: The average rate on a 30-year mortgage is close to 7%; the supply of homes for sale is historically low; and home prices are at record levels.
High rates deter homebuyers
The average rate on a 30-year mortgage is 6.95%, according to mortgage buyer Freddie Mac. That’s more than double what it was in early July 2021.
Mortgage rates are influenced by several factors, including how the bond market reacts to the Fed’s interest rate policy and changes in the 10-year Treasury yield, which lenders use as a guide to pricing home loans. .
The 10-year yield, which reached 4.7% at the end of April, has been falling mainly recently, following some economic data showing slower growth, which could help contain inflationary pressures and convince the Fed starting to reduce its key interest rate from its highest value. level in more than 20 years.
Fed officials said in June that inflation has moved closer to the 2% target level in recent months and signaled that they expect to cut the benchmark interest rate later this year.
Even so, economists’ projections point to the average rate on a 30-year home loan remaining above 6%.
There are not enough homes for sale
Another deterrent for homebuyers is the historically low inventory of homes on the market.
The good news: The number of homes on the market at the end of May was the highest since August 2022, a trend that bodes well for homebuyers this summer. The bad news: the supply of homes available for sale nationally remains well below pre-pandemic levels.
The supply of homes for sale in the U.S. was tight before Covid hit, due to more than a decade of subpar new home construction and demographic trends that led homeowners to hold on to their properties longer.
The wide difference between current mortgage rates and where they were just three years ago (3%) has also discouraged many homeowners who secured minimum rates from selling, what real estate experts call the “lock-in” effect.
The price is not right
The national average sales price of a previously occupied home increased 5.8% in May from a year ago to $419,300, an all-time high since 1999, according to the National Association of Realtors. It is also up 51% from just five years ago.
Price increases are slowing, however. CoreLogic’s home price index shows that U.S. home prices rose 4.9% in May from a year earlier, the smallest increase since October. The real estate data tracker predicts that national home price growth will slow to 3% by next May.
“The rise in mortgage rates this spring caused a slowdown in homebuyer demand and prices,” said Selma Hepp, chief economist at CoreLogic.
Home prices are cooling as more homes stay on the market longer. Metro areas in Florida, Texas, Georgia and other states where home construction has increased in recent years have also seen price growth slow.
Some economists worry that a slight drop in mortgage rates without a jump in the stock of homes on the market could actually work against buyers struggling to buy a home, giving sellers an incentive to raise their asking price.
“I’m a little worried about what will happen to home prices when rates fall, because I think that would stimulate demand without actually stimulating supply, at least in the short term,” said Daryl Fairweather, chief economist at Redfin. “This could lead to a sharp increase in prices.”
Should anyone buy it now?
Homebuyers who can afford to buy now should benefit from the wider selection of homes on the market.
Anyone who can pay for everything in cash may also want to buy in the short term.
“Prices have been rising and probably won’t fall, so there’s really no reason to wait if you’re not expecting rates to fall,” said Redfin’s Fairweather.
