Housing Market Sees Resurgence, But Challenges Persist
The US housing market has shown signs of recovery, with existing home sales reaching a 10-month high in December. According to the National Association of Realtors, home sales rose 2.2% last month to a seasonally adjusted annual rate of 4.24 million units, surpassing economists’ forecasts.
Gains Limited by Mortgage Rates and House Prices
Despite this upswing, further growth is likely to be hindered by elevated mortgage rates and house prices, which are keeping many prospective buyers on the sidelines. The average rate on a 30-year fixed-rate mortgage is currently just below 7%, making it difficult for buyers to enter the market.
Inventory Remains a Concern
Housing inventory fell 13.5% to 1.15 million units last month, although supply increased 16.2% from one year ago. At December’s sales pace, it would take 3.3 months to exhaust the current inventory of existing homes, up from 3.1 months a year ago. A four-to-seven-month supply is viewed as a healthy balance between supply and demand.
Prices Continue to Rise
The median existing home price shot up 6.0% from a year earlier to $404,400 in December, and hit a record high of $407,500 in 2024. This surge in prices is making it even more challenging for buyers to enter the market.
First-Time Buyers Struggle to Make an Impact
First-time buyers accounted for 31% of sales versus 29% a year ago. However, this is still below the 40% share needed for a robust housing market. All-cash sales constituted 28% of transactions last month, down from 29% a year ago.
Economists Predict Weak Sales in First Half of Year
A survey from mortgage finance agency Fannie Mae predicts weak existing home sales in the first half of the year, citing that “new homes are now priced competitively with existing homes and are far more available.” The agency forecasts the popular 30-year fixed-rate mortgage would average 6.7% in the first quarter and edge down to 6.6% in the second quarter.
Job and Wage Gains Provide Some Optimism
Despite the challenges, job and wage gains are positively impacting the market. Lawrence Yun, the NAR’s chief economist, notes that “home sales in the final months of the year showed solid recovery despite elevated mortgage rates.” However, it remains to be seen if this momentum can be sustained in the face of rising mortgage rates and house prices.
Leave a Reply