The Balancing Act: High Home Prices, Low Mortgage Rates and the Quest for Inventory
As mortgage rates remain on the lower side, it seems buyers are becoming more comfortable with the idea of higher home prices, as indicated by recent data from the National Association of REALTORS® (NAR). The pace of existing-home sales picked up in January, with buyers overlooking the spike in home prices—hitting record highs—to seize the opportunity presented by the lower mortgage rates and a slight increase in inventory.
According to the latest data from NAR, which encompasses closed transactions of single-family homes, townhouses, condos, and co-ops, there was a 3.1% rise in sales from the previous month in January. However, when compared to the same period last year, sales were down by 1.7%.
Even though the inventory in January was 2% higher than in December, the market is still experiencing a historic housing shortage, maintaining a tight three-month supply. Buyers continue to navigate through a competitive market. The January report from NAR highlighted several key points:
Home prices have seen a notable increase. The median price for existing homes reached $379,100, marking a 5.1% increase from the previous year. Price hikes were observed across all major US regions. Specifically, the median price for a single-family home in January was $383,500, a 5% increase from last year, while condos sold for a median price of $339,400, up by 5.7%.
Inventory levels have slightly improved but are still insufficient. The total inventory for existing homes stood at 1.01 million units, up by 3.1% from the previous year. Yet, the national housing stock continues to be low. NAR President Kevin Sears mentioned, "Increased listings are crucial for facilitating movement in the housing market," highlighting the association's support for the More Homes on the Market Act, aimed at reducing the tax burden on home sales to encourage more listings.
Listings are staying on the market a bit longer. Properties typically stayed on the market for 36 days, an increase from 29 days in December and 33 days from the previous year.
Rising Tides in Real Estate: Record Home Sales Amid Surging Rates
In March, contract signings for homes hit their highest point of the year, accompanied by an increase in new home sales. However, with mortgage rates now around 7%, there are concerns about future buyer hesitancy.
The National Association of REALTORS® (NAR) reported a 3.4% increase in their Pending Home Sales Index for March, indicating modest yet consistent market activity. Lawrence Yun, NAR’s Chief Economist, noted that significant market improvements depend on reduced mortgage rates and more available housing.
Regional data showed strong growth in the South and West, with around 7% increases in each, and a smaller rise in the Northeast by 2.7%. The Midwest saw a 4.3% decrease, yet maintained higher year-over-year sales. Looking ahead, NAR predicts a 9% increase in existing-home sales for 2024 and a 13.2% rise in 2025. Housing starts are also expected to grow by 1.2% this year and by about 5% in 2025. "Given the low sales levels of recent years and the substantial increase in the U.S. population since then, a rebound in home sales is inevitable," said Yun. He anticipates a steady increase in inventory driven by new home construction and varying life events that prompt people to buy or sell homes.
While home sales are projected to climb steadily, NAR expects home prices to continue rising, reaching record levels. Yun explains, "The ongoing housing shortage will push prices up, though at a slower pace than before. Rising prices faster than income growth poses challenges, particularly for first-time buyers."
NAR forecasts that the median national home price will increase by 1.8% in 2024 to a new high of $396,800, up from $389,800 in 2023. The association expects a similar price increase in 2025, bringing the median price to $403,800. The pace of price growth in newly constructed homes is projected to be more moderate, with an expected increase of 0.6% to $426,100 in 2024. This slower growth rate is attributed to a shift by builders towards smaller, more affordable homes.
Housing Market Outlook Brightens for 2024: Increased Inventory and Lower Mortgage Rates Signal a Shift Towards Greater Affordability
Despite recent challenges in housing affordability, as reported by Redfin, where only 15.5% of homes were affordable to the average U.S. household in 2023, the outlook for 2024 is promising. Contributing to the earlier scarcity were reduced listings and a spike in mortgage rates, but the landscape is changing. Housing inventory has seen a notable increase of 7.5% year-over-year, suggesting a shift towards a more buyer-friendly market. This increase in supply, coupled with a decline in mortgage rates, which have now stayed below 7% for consecutive weeks, is fostering a more conducive environment for home buying. Freddie Mac's report of returning homebuyers and rising homebuilder confidence, alongside an uptick in new home construction, signals a robust response to the demand for more affordable housing. These developments indicate a positive trend towards greater affordability and accessibility in the U.S. housing market for the upcoming year.
Valon Nikci
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