Why a housing market ‘thaw’ never came in 2024

By Investor Empires On Dec 21, 2024

Wall Street analysts had hoped the housing market would show signs of life in 2024. Instead, it remained stagnant.

The reason is largely related to the bumpy path for mortgage rates this year coupled with low supply and record home prices. In January, the average interest rate on a 30-year fixed mortgage was hovering around 6.6%. According to Freddie Mac.

Now, despite the ups and downs, the price is hovering around the same level. It was 6.72% in the week through Wednesday, compared with 6.6% the week before, according to Freddie Mac data.

Since the cost of borrowing did not become cheaper, it did not lead to any significant movement in buying and selling activity. In fact, sales of previously owned homes are expected to set a record for the worst year since 1995 for the second year in a row.

“I was thinking that this year we would see the housing market start to thaw and see more activity,” Jeff Tucker, chief economist at Windermere Real Estate, told Yahoo Finance in an interview. “It didn’t quite work out that way.”

Read more: When will mortgage rates go down? A look to 2025.

Housing activity has had a difficult start this year. Mortgage rates, which had been falling through the end of 2023, stabilized and then began to rise again in February, with the average 30-year interest rate reaching 6.77% by mid-month, per Freddie Mac data.

The rise in interest rates came on the heels of a stronger-than-expected January jobs report Comments made by Federal Reserve Chairman Jerome Powell In early February, the Fed will need to see more progress on inflation before lowering borrowing costs. The Fed does not control mortgage interest rates, but its actions influence them through movements in bond yields.

Rising housing prices exacerbated pressures from rising interest rates. The median sales price of existing homes jumped 5.7% compared to February of last year, marking the eighth straight month of year-over-year price gains, according to the National Association of Realtors (NAR).

High home prices have burned out many budget-conscious buyers. Pending home sales, a forward-looking indicator of home sales based on contracts being signed, fell 7% year-over-year in February.

However, there were reasons for optimism. Data from Redfin showed this New listings increased by 10% On an annual basis during the four weeks ending February 18, it was the largest increase in two months, as homeowners benefited from higher home prices.

“Inventory has improved from the lows, but remains limited in many markets, sales activity has been weak, and mortgage rates have had a bumpy ride,” Ali Wolf, chief economist at Zonda, told Yahoo Finance.

Wall Street analysts had hoped the housing market would rebound in 2024. Instead, it has remained stagnant: Sales of previously owned homes are expected to set the record for the worst year since 1995 for the second year in a row. (Photo by Paul Bercebach/MediaNews Group/Orange County Register via Getty Images) · MediaNews Group/Orange County Sign up via Getty Images via Getty Images

As spring approaches, more house hunters have been actively scouting and scouting for homes Submitting loan applications.

Despite the early stage of purchasing activity, it did not lead to an increase in sales. Existing home sales fell 4.3% in March to a seasonally adjusted annual rate of 4.19 million per NAR. Mortgage rates remained high near 7%which contributes to further slowdown.

“A lot of people were surprised that home prices did not fall as mortgage interest rates rose. This showed us that the imbalance between supply and demand was stronger than borrowing costs,” Wolf said.

By the summer, mortgage rates changed course It started to decline New data showed that inflation is slowing. In June, the Fed kept interest rates steady and expected to cut rates once this year.

But this has not been enough to push some potential homebuyers off the fence, with high costs remaining a major obstacle. Data from the National Association of Realtors showed that existing home sales fell 5.4% from a year earlier in June, while the median sales price reached $426,900, a record high for the second month in a row.

Tucker said skyrocketing housing costs “threw some cold water on homebuyers who were hoping for a real turnaround in conditions.”

In September, mortgage rates fell More than half a percentage point Over six weeks as investors priced in interest rate cuts from the Fed, starting this month and continuing through 2025.

But sales did not improve because many potential buyers and sellers who were constrained by historically low borrowing costs were playing the waiting game. Existing home sales fell to their lowest level since 2010 during September, according to the NAR report.

Home hunters were hoping mortgage interest rates would fall further once the Federal Reserve lowered interest rates to get serious about buying. The Federal Reserve cut its benchmark interest rate by half a percentage point on September 18. But many economists have warned that mortgage interest rates are unlikely to fall much further.

In fact, mortgage interest rates began to rise, approaching 6.5% in October, as markets adjusted their expectations about the scope and timing of future Fed rate cuts.

“Historically, mortgage rates move in tandem with federal interest rate changes,” Wolf said. “However, this year, mortgage interest rates actually rose after the Fed lowered interest rates. This is because investors ultimately pay mortgage interest rates, and they take other economic data and policy proposals and allocate their money accordingly.”

As 2024 draws to a close, the price path looks uncertain. At its December policy meeting, the Fed forecast two interest rate cuts next year, down from the previous forecast of four. Investors remain concerned about sticky inflation data and the potential impact of the incoming Trump administration’s policies on price increases.

Read more: How does the Fed’s interest rate decision affect mortgage rates?

Analysts said they believe housing activity will rebound in 2025 as more homes come on the market as buyers and sellers adjust to the reality of today’s higher interest rates.

In one encouraging sign, existing home sales for November rose 6.1% from a year ago, the largest year-over-year increase since June 2021, according to NAR.

“We think it’s going to continue to be a slow climb,” Danielle Hale, chief economist at Realtor.com, told Yahoo Finance’s Claire Boston.

Danny Romero is a Yahoo Finance correspondent. Follow her on X @daniromerotv.

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