The housing market remains relatively subdued this summer, though recent trends suggest changes might be on the horizon. Mortgage rates have stabilized and are at their lowest since February 2023, while inventory levels are improving, leading to slower home price increases. Despite these developments, home prices continue to reach new highs, causing many buyers to hold off in hopes of further rate reductions.
Forecast for 2024 and 2025
As of June, the S&P CoreLogic Case-Shiller Home Price Index recorded a 5.4% annual increase, a slight decrease from the previous month but still indicating high home prices. Lisa Sturtevant, chief economist at Bright MLS, expects home prices to decline later in 2024 due to rising inventory. However, she does not foresee significant nationwide decreases in home prices for 2024 or 2025. Sturtevant suggests that while the market might shift slightly towards buyers, substantial price drops are unlikely.
Indicators show the market could be tilting in favor of buyers, with about 25% of Zillow’s listings experiencing price cuts in June, a level not seen since 2018. Yet, experts like Keith Gumbinger of HSH.com believe that a substantial housing recovery will require a significant increase in housing inventory and a stabilization of mortgage rates. Currently, mortgage rates are below 7%, and the Federal Reserve’s anticipated rate cuts could further influence the housing market.
Prospects for 2025
For a more balanced housing market, Gumbinger suggests that mortgage rates need to settle in the upper 4% to lower 5% range, but this may not happen immediately. The potential for a housing recovery in 2025 remains uncertain, influenced by how mortgage rates and home prices react to changing market conditions. Gumbinger predicts that while 2025 might see improvements, it will not be a particularly strong year for housing affordability.
Upcoming NAR Practice Changes
The National Association of Realtors (NAR) has agreed to significant changes following antitrust lawsuits, including eliminating the standard practice of sellers covering buyer-broker commissions on MLS listings. New rules require buyers to enter into written agreements with agents, specifying commission amounts and terms. This change might impact affordability, especially for buyers with limited resources, but could also lead sellers to offer compensation through other channels.
Impact on Affordability and Inventory
The current inventory remains well below pre-pandemic levels, largely due to homeowners being reluctant to move due to higher mortgage rates. Rick Sharga of CJ Patrick Company predicts that meaningful increases in inventory won’t occur until mortgage rates fall to the low 5% range, likely beyond 2024. Although new home construction has provided some relief, more is needed to address the inventory shortage.
Builder sentiment has declined, with confidence dipping to 39 in July, reflecting ongoing affordability challenges. Despite this, builders are increasingly offering price reductions and incentives to attract buyers. If mortgage rates continue to decrease, it could alleviate some inventory constraints and potentially improve market conditions for buyers.
In summary, while recent trends suggest potential improvements in housing affordability, significant changes are unlikely in the immediate future. The market will continue to evolve, influenced by mortgage rates, inventory levels, and new industry regulations.
Existing-Home Sales
- July Performance: Existing home sales increased by 1.3% in July, ending a four-month decline. However, sales were still down by 2.5% compared to the previous year.
- Median Home Price: Rose by 4.2% year-over-year, reaching $422,600.
- Inventory: Inventory rose slightly by 0.8% from June, totaling 1.33 million unsold homes and representing four months of supply. This is still considered a tight market, as a balanced market typically has four to six months of inventory.
New Home Sales
- July Performance: New home sales saw a significant rebound, with a 10.6% increase from June and a 5.6% increase from the previous year.
- Median Home Price: For new homes, the median price was $429,800, surpassing the median price of existing homes.
- Market Dynamics: Builders are offering concessions like mortgage rate buydowns to help buyers manage affordability challenges. However, new home sales are starting to lag behind the existing-home market due to increased competition and rising prices.
Pending Home Sales
- July Performance: The Pending Home Sales Index dropped 5.5% in July, reaching its lowest point on record. This follows a 4.8% increase in June, which had sparked hope for a recovery.
- Factors Influencing Decline: High home prices, affordability issues, and uncertainty related to upcoming elections and new real estate rules are contributing to the decrease in pending sales.
Affordability Challenges
- Monthly Payments: With a median home price of $422,600 and mortgage rates at 6.78%, monthly payments for a 30-year mortgage with 20% down amount to $2,199. This is an increase from $2,117 a year ago.
- Affordability Index: The NAR Housing Affordability Index dropped to 93.3 in June, indicating that homes are becoming less affordable for the median-income family. Affordability has declined by over 40% since February 2020.
- Starter Homes: Prices for starter homes have risen by 4.2% since July 2023, compared to higher increases in middle- and upper-tier home prices.
Pro Tips for Buyers and Sellers
For Buyers:
- Budget Planning: Focus on affordable monthly payments rather than just the home price.
- Flexibility: Be open to varying home sizes and locations to find a suitable property.
- Market Awareness: Stay informed about market trends and available inventory.
- Preparation: Improve your credit score and financial readiness to secure better loan terms.
For Sellers:
- Price Competitively: Research and price your home based on current market conditions.
- Home Condition: Ensure your home is well-maintained and visually appealing.
- Local Expertise: Work with a local real estate agent for better market insights and exposure.
- Address Issues: Make necessary repairs to enhance the appeal of your home.
Market Outlook for 2024
- Crash Likelihood: Experts believe a market crash is unlikely due to low supply and strong homeowner equity. Predictions suggest a moderation in home price growth rather than a dramatic drop.
- Foreclosure Trends: Foreclosure activity has increased, with a notable rise in new foreclosures and real estate-owned properties. However, the increase follows a period of lower foreclosure rates earlier in the year.
Overall, while the housing market shows signs of improvement in some areas, challenges like affordability and inventory shortages continue to affect both buyers and sellers. The outlook for 2024 remains cautiously optimistic, with potential for gradual improvements rather than dramatic changes.
