Housing Market Stagnation: A Perfect Storm of High Rates and Prices
As 2024 draws to a close, the housing market remains stuck in neutral, defying expectations of a rebound. The primary culprits behind this stagnation are mortgage rates, which have stubbornly refused to budge, and record-high home prices that have priced out many buyers.
Mortgage Rates: The Unlikely Culprit
In January, the average 30-year fixed mortgage rate hovered around 6.6%, according to Freddie Mac. Despite some ups and downs, the rate has remained stuck around the same level, currently sitting at 6.72%. This lack of movement has failed to spark any significant buying or selling activity.
A Rocky Start to the Year
The housing market got off to a rough start in 2024, with mortgage rates plateauing and then rising again in February. The average 30-year rate reached 6.77% by mid-February, following a stronger-than-expected January jobs report and comments from Federal Reserve Chair Jerome Powell. The Fed’s actions may not directly control mortgage rates, but they do influence them through bond yields.
Rising Home Prices: The Other Half of the Problem
Rising home prices have further exacerbated the pressures of high mortgage rates. The median existing home sales price jumped 5.7% compared to February last year, marking the eighth consecutive month of year-over-year price gains. This has priced out many budget-conscious buyers, leading to a 7% year-over-year drop in pending home sales in February.
A Glimmer of Hope
Despite the challenges, there were some positive signs. New listings climbed 10% year over year during the four weeks ending Feb. 18, the biggest increase in two months, as homeowners took advantage of rising prices. However, this increase in inventory was not enough to offset the weak sales activity and high mortgage rates.
Summer Slowdown
As summer approached, mortgage rates remained elevated near 7%, further contributing to the slowdown. Despite some buyers actively exploring and submitting loan applications, it didn’t lead to an increase in sales. Existing home sales sank 4.3% in March to a seasonally adjusted annual rate of 4.19 million.
A Brief Respite
By summer, mortgage rates began to decline as new data showed inflation was slowing. The Fed held interest rates steady and projected a single rate cut for the year. However, this wasn’t enough to push some prospective homebuyers off the sidelines, with high costs remaining a major obstacle.
The Waiting Game
In September, mortgage rates fell more than half a percentage point over a six-week period, but sales didn’t improve. Many would-be buyers and sellers were locked into historically low borrowing costs and were playing the waiting game, hoping for further rate cuts.
The Rate Path Ahead
As 2024 comes to a close, the rate path looks uncertain. The Fed has projected two rate cuts for next year, down from a previous forecast of four. Investors remain concerned about sticky inflation data and the potential impact of policy proposals on price increases. Despite this uncertainty, analysts believe that housing activity will pick up in 2025 as more homes hit the market and buyers and sellers adjust to the reality of today’s higher interest rates.
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