Is it the best time to buy your dream house now?
Well, the housing market in 2024 has been characterized by unique dynamics, primarily driven by fluctuating mortgage rates and their impact on inventory levels. As we approach the latter part of the year, it’s crucial to analyze the current state of the market and consider its potential trajectories. This comprehensive analysis delves into various aspects of the housing market, including inventory trends, mortgage rates, new listings, price cuts, pending sales, and economic indicators that influence the real estate landscape.
Table of Contents
Housing Inventory: The Buffer Effect
One of the most positive aspects of the 2024 housing market has been the creation of an inventory buffer due to higher mortgage rates. This buffer provides a cushion that was notably absent during the 2020-2023 period, offering more options for buyers and potentially more stability in the market, especially if economic conditions soften and rates begin to fall.
Throughout 2024, we’ve observed a pattern where inventory growth has consistently fallen within the predicted range of 11,000-17,000 when mortgage rates exceeded 7%. This trend has occurred six times, aligning perfectly with projections. However, recent weeks have seen a deviation from this pattern, coinciding with a decline in mortgage rates.
The most recent data shows a slight decrease in inventory from 704,744 to 704,335 between August 23-30, 2024. This contrasts with the same period in 2023, which saw an increase from 503,924 to 509,562. To put these figures in perspective, the all-time inventory bottom was recorded in 2022 at 240,497, while active listings for the same week in 2015 were 1,204,810. These numbers illustrate the significant recovery in inventory levels compared to the historic lows of 2022, while also highlighting that we’re still well below pre-pandemic norms.
Here is a graph that visualizes the inventory levels from August 23-30 for 2022, 2023, and 2024. The chart highlights the significant recovery in inventory levels from the historic low in 2022 to more stable levels in 2023 and 2024, although we remain below pre-pandemic norms.
The recent decline in mortgage rates has begun to influence inventory trends. The slight week-to-week decrease observed just before the holiday weekend might be an early indicator of this impact. As rates continue to fall, we may see a slowdown or reversal in inventory growth, as more buyers enter the market and sellers become less inclined to list their properties.
Mortgage Rates: The Market’s Key Driver
At the beginning of the year, the forecast for 2024 included a range for mortgage rates between 7.25% and 5.75%, with the 10-year Treasury yield expected to fall between 4.25% and 3.21%. This forecast has proven relatively accurate, with rates trending within these ranges throughout the year.
Recently, the mortgage market has experienced a notable decline in rates, dropping to the lowest levels of 2024. This decrease has been influenced by several factors, including a softer labor market, expectations of potential Federal Reserve rate cuts, and overall economic uncertainty.
The 10-year Treasury yield, a key benchmark for mortgage rates, has been hovering around the 3.80% level. This level has shown remarkable resilience, similar to the 3.37% “Gandalf line” observed in 2023. However, with increasing signs of economic weakness, there’s potential for this level to be breached in the coming months.
Mortgage spreads, which were a significant concern in 2023 due to the banking crisis, have shown improvement in 2024. The absence of major banking crises and the anticipation of Fed rate cuts have contributed to this positive trend. Currently, if we applied the worst spread levels from 2023 to today’s market, mortgage rates would be approximately 0.58% higher.
Here’s what we see in the mortgage market:
30-year fixed-rate mortgages
Current mortgage rate: 6.53%
Possible new mortgage rate: 6.28%
Monthly savings on a $300k loan: $67
15-year fixed-rate mortgages
Current rate: 5.92%
Possible new rate: 5.67%
Monthly savings on a $300k loan: $40
The following tablet visually compares the impact of different mortgage rate changes on monthly payments for a standard loan amount of $300,000. By examining both 30-year and 15-year fixed-rate mortgages, we can see how even small percentage rate changes translate into significant savings for homeowners.
| Mortgage Type | Current Rate | New Rate | Monthly Savings ($) | Total Savings Over Loan Period ($) |
|---|---|---|---|---|
| 30-Year Fixed | 6.53% | 6.28% | $67 | $17,700 |
| 15-Year Fixed | 5.92% | 5.67% | $40 | $7,200 |
New Listings and Price Cuts: Market Adjustments
New listing data (from Altos Research) for 2024 has been following its typical seasonal pattern of decline. However, it’s important to note that 2024 is the record’s second-lowest new listing year. The most recent weekly data shows 59,195 new listings in 2024, compared to 59,081 in 2023 and 62,775 in 2022. These figures underscore the persistent shortage of new inventory entering the market, contributing to the ongoing supply-demand imbalance.
In terms of price cuts, about one-third of all homes typically experience a reduction in a normal year. However, the elevated mortgage rates in 2023 and early 2024 led to an increase in the percentage of homes seeing price reductions. Recent data shows 39.3% of homes experiencing price cuts in 2024, compared to 36% in 2023 and 39% in 2022. The recent slowdown in price cut percentages aligns with the falling mortgage rates, suggesting that sellers may gain more confidence in their initial pricing strategies.
Pending Sales and Purchase Applications: Demand Indicators
Pending sales data provides valuable insight into current market demand. The most recent figures show 368,076 pending sales in 2024, compared to 358,408 in 2023 and 404,076 in 2022. While there hasn’t been significant week-to-week growth, the year-over-year comparison shows a slight increase. However, it’s crucial to consider that starting from August of the previous year, mortgage rates began climbing towards 8%, which may create easier year-over-year comparisons in the coming months.
The interpretation of purchase application data requires careful consideration of several factors, including seasonality, recent trends, rate sensitivity, and its forward-looking nature. Purchase applications are highly seasonal, with the peak period typically occurring between the second week of January and the first week of May. The last 12 weeks have shown the strongest performance for purchase applications this year, with 7 positive weeks versus 5 negative weeks. Previous rate declines in 2022 and 2023 led to temporary increases in purchase applications, which halted when rates rose again.
Economic Indicators and Their Impact
Various economic factors heavily influence the housing market, each playing a critical role in shaping mortgage rates and overall market conditions. This summary will give you a quick snapshot of how these economic indicators impact the housing market.
| Economic Indicator | Impact on Housing Market |
|---|---|
| Labor Market Trends | A weakening labor market, as seen in negative job revisions, can lower mortgage rates by reducing demand. |
| Federal Reserve Policy | The potential for rate cuts, influenced by softening labor conditions, may decrease mortgage rates, making housing more affordable. |
| GDP Growth | Slower GDP growth may signal economic weakness, which typically results in lower interest rates and could make home loans more affordable. |
| Federal Reserve’s Baby Pivot | Indications from Fed Chairman Jerome Powell’s Jackson Hole speech point to a more accommodative policy, which could lead to falling mortgage rates. |
| Manufacturing Data | Weak manufacturing output could signal economic slowdown, prompting lower interest rates and more affordable mortgages. |
| Bond Auctions | Bond yields influence mortgage rates. Weak demand for bonds could lead to higher yields and mortgage rates, while strong demand could lower them. |
The labor market plays a crucial role in shaping the housing market. Recent developments, including a negative job revision print, have contributed to the downward pressure on mortgage rates. As the labor market shows signs of softening, it increases the likelihood of the Federal Reserve implementing rate cuts, which could further influence mortgage rates.
The recent “baby pivot” by Federal Reserve Chairman Jerome Powell, as indicated in his Jackson Hole speech, suggests a potential shift towards a more accommodative monetary policy. This change in stance could have significant implications for mortgage rates and, consequently, the housing market.
Upcoming economic releases, including manufacturing data and bond auctions, will provide additional context for the direction of interest rates. Weaker economic data could potentially lead to lower mortgage rates, while strong economic indicators might support higher rates.
Looking Ahead: Key Factors to Watch
As we move forward in 2024, several critical factors will influence the housing market:
- Federal Reserve Policy: Timing and magnitude of potential rate cuts will be pivotal in shaping mortgage rates.
- Economic Data: Employment figures, inflation rates, and GDP growth will provide insights into the economy’s overall health and impact on housing demand and affordability.
- Inventory Levels: Monitoring whether the current plateau in inventory growth becomes a trend or reverses is key for market dynamics.
- Affordability: The balance between home prices, mortgage rates, and wage growth will affect buyer demand and market accessibility.
- Global Economic Factors: Economic conditions and geopolitical events could affect U.S. Treasury yields, influencing mortgage rates.
These factors will play a crucial role in determining the trajectory of the housing market for the remainder of 2024 and beyond.
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FAQ: Housing Market 2024
What does housing inventory mean?
Housing inventory refers to the total number of homes available for sale in a particular market at a given time. It includes all active listings, from new homes to existing properties. When inventory is high, buyers have more options, and when it’s low, competition for available homes increases, often driving up prices.
What should buyers consider with current housing inventory trends?
Buyers should closely monitor housing inventory trends to understand market dynamics. Low inventory can lead to bidding wars and higher prices, so buyers may need to act quickly. Conversely, higher inventory may provide more options and potentially better deals. It’s also important to consider local market conditions, mortgage rates, and economic factors influencing inventory levels.
How does low housing inventory impact home prices and availability?
Low housing inventory typically leads to increased buyer competition, which drives home prices. With fewer homes available, buyers may find it more challenging to negotiate on price or find a property that meets all their needs. Low inventory can also lead to faster sales, meaning homes spend less time on the market.
Are there specific regions experiencing a peak in housing inventory?
Yes, certain regions are experiencing a peak in housing inventory, particularly in states like Texas. According to Redfin, the latest data indicates that areas such as Dallas are seeing an increase in the number of homes for sale, with a significant rise in existing-home sales compared to a year ago. This surge in housing stock is attributed to the pandemic recovery, leading to a more favourable housing supply for homebuyers.
Conclusion
The 2024 housing market has shown resilience and adaptability in the face of changing economic conditions. The creation of an inventory buffer, coupled with the recent decline in mortgage rates, has set the stage for potentially increased activity in the latter part of the year. However, the market remains sensitive to economic indicators and policy decisions.
As we approach the Federal Reserve’s September meeting and analyze upcoming economic data, the direction of mortgage rates and their impact on the housing market will become clearer. For now, the focus remains on the delicate balance between economic data, Fed policy, and market dynamics, all of which will play crucial roles in shaping the housing landscape for the remainder of 2024 and beyond.
