Housing Market Hits a Snag: Sales Plummet to Near 30-Year Low
The US housing market has taken a significant hit, with sales of previously occupied homes plummeting to a nearly 30-year low in 2024. This marks the second time in as many years that the market has experienced such a drastic decline. According to the National Association of Realtors, existing home sales totaled a mere 4.06 million last year, a 0.7% drop from 2023.
Elevated Mortgage Rates and Soaring Prices Freeze Out Prospective Buyers
The main culprits behind this decline are elevated mortgage rates, rising home prices, and a severe lack of properties on the market. The median national home price for all of last year surged 4.7% to an all-time high of $407,500, further pricing out potential buyers. Meanwhile, the average rate on a 30-year mortgage has been hovering around 7%, limiting home hunters’ buying power.
A Perfect Storm of Affordability Issues and Limited Inventory
The US housing market has been in a sales slump since 2022, when mortgage rates began to climb from pandemic-era lows. The combination of record-high home prices, rising mortgage rates, and a dearth of homes for sale has created a perfect storm of affordability issues. As a result, many homebuyers and sellers have been forced to sit on the sidelines.
A Historical Low: Inventory Levels Plummet
At the end of December, there were only 1.15 million homes on the market, a far cry from the monthly historical average of about 2.25 million. This lack of inventory has helped prop up prices, further exacerbating the affordability crisis. In a balanced market, there would be a 4- to 6-month supply of homes. Currently, the available inventory amounts to a mere 3.3-month supply.
A Glimmer of Hope: Sales Rise in December
Despite the bleak outlook, home sales in December rose 2.2% from the previous month on a seasonally adjusted basis to a 4.24 million annual pace. This marks the third straight monthly increase in sales, surpassing analysts’ forecasts. Sales also rose 9.3% in December versus the same month last year.
First-Time Homebuyers Struggle to Get a Foot in the Door
Limited inventory, especially in the more affordable price range, continues to drive prices higher. This has made it increasingly difficult for first-time homebuyers to afford a home. They accounted for only 24% of all homes sold last year, a far cry from the historical average of 40%. However, there was a slight uptick in first-time buyers in December, with 31% of all homes sold going to this demographic.
A Challenging Road Ahead for the Housing Market
The US housing market faces significant challenges in the coming year. With mortgage rates expected to remain elevated and inventory levels at historic lows, it’s unlikely that sales will rebound anytime soon. As the National Association of Realtors’ chief economist, Lawrence Yun, aptly put it, “How is it possible that home sales can be this low, considering that the U.S. population has increased by more than 70 million over this time period from 1995 to today?” The answer lies in the affordability issue, which continues to plague the market.
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