LOS ANGELES (AP) – The housing market shows little sign of breaking out of its three-year funk after a disappointing spring season and amid a bleak outlook for the summer and fall.
Homebuyers came into 2024 optimistic that mortgage rates would ease further after a slump 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.
By April, the average rate on a 30-year home loan moved above 7% for the first time since November. That, plus record high home prices, forced many would-be homebuyers to put their home searches on hold — some indefinitely.
Economists predict that mortgage rates will ease modestly by the end of this year. But a small drop in rates may not be enough to entice home buyers and convince homeowners that it’s a good time to sell.
Here’s a look at the key trends behind the trajectory of the housing market so far this year and what homebuyers and sellers can expect in the second half of 2024:
The spring home buying season was a failure — 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 the spring home buying season and has been declining in recent years.
Sales of previously occupied homes in the US fell in the March-June period from a year earlier in 2022 and 2023. Sales fell in March, April and May this year, and indications are that June also saw a pullback.
The weak spring sales are a reflection of the affordability challenges facing many homebuyers: the average rate for a 30-year mortgage rate is anchored near 7%; the supply of homes for sale is historically low; and house prices are at record levels.
High rates deter home buyers
The average rate for a 30-year mortgage is 6.95%, according to mortgage buyer Freddie Mac. This is more than double what it was at the beginning of July 2021.
Mortgage rates are affected by several factors, including how the bond market reacts to the Fed’s interest rate policy and movements in the 10-year Treasury yield, which lenders use as a guide to pricing loans for home.
The 10-year yield, which stood at 4.7% at the end of April, has fallen mostly recently after some economic data showing slower growth, which could help keep a lid on inflationary pressures and convince the Fed- in to start lowering its prime interest rate from the highest. level in more than 20 years.
Fed officials said in June that inflation had moved closer to its 2% target in recent months and signaled that they expect to cut their key interest rate once this year.
However, economists’ forecasts call for the average rate of a 30-year home loan to remain above 6%.
There are not enough houses for sale
Another obstacle 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 largest 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 its pre-pandemic levels.
The supply of homes for sale across the US was tight before Covid hit due to more than a decade of below-average new home construction and demographic trends that led to homeowners hanging onto properties longer Theirs.
The wide gap between current mortgage rates and where they were just three years ago (3%) has also discouraged many homeowners who secured low rates from selling, what real estate experts refer to as the “lock-in” effect. “.
The price is not right
The national median sales price of a previously occupied home rose 5.8% in May from a year earlier to $419,300, an all-time high on records since 1999, according to the National Association of Realtors. It’s also a 51% increase from just five years ago.
However, price growth is slowing. CoreLogic’s home price index shows U.S. home prices rose 4.9% in May from a year ago, 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 demand and homebuyer prices to slow,” 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 homebuilding has surged in recent years have also seen price growth ease.
Some economists worry that a slight drop in mortgage rates without an increase in the inventory of homes on the market could work against buyers struggling to afford a home by giving sellers an incentive to raise their asking price.
“I’m a little concerned about what’s going to happen to home prices when rates come down, because I think that would boost demand without really boosting supply, at least in the short term,” said Daryl Fairweather, chief economist at Redfin. “This could lead to a sharp rise in prices.”
Should anyone buy now?
Homebuyers who can afford to buy now should take advantage of the widest selection of homes on the market.
Anyone who can afford to pay all cash may also want to buy in the near term.
“Prices have gone up and probably won’t go down, so there’s no reason to wait unless you’re waiting for rates to come down,” Redfin’s Fairweather said.