PARTNERS VOICE | MARKET FORECAST
December 2024

2024 has proven to be yet another "unprecedented" year of twists and turns, and the housing market is no exception. Many potential buyers and sellers are still holding out for lower mortgage rates, the economy begins to recover and then stalls again, and housing inventory is increasing, yet at a snail's pace. However, buyer mortgage applications are up 1% from last year, affordability is moving in a positive direction, and there is hope on the horizon. Let's take a look at some of the trends and trajectories of the housing market as we close out 2024.

Mortgage Rates

Remember the enthusiasm we felt when the Fed cut interest rates by 50 basis points in September? Mortgage rates went down, ending the month at 6.1%, and stayed below 6.5% for 42 days, encouraging some buyers and sellers to make a move. However, the national average 30-year mortgage rate began shifting upward in October, hovering in the mid-6% range before climbing back up to 7% by mid-November. But why?

Because the housing market adjusts mortgage rates in anticipation of what the Fed will do, so not only was the September interest rate cut factored in before it even happened, the market over-corrected. Strong economic indicators, better-than-expected jobs reports, and declining inflation that immediately followed forced the market to course-correct, resulting in rising mortgage rates. At its November meeting, the Fed cut the federal funds rate by an additional 25 basis points, and the market continues to adjust.


The Economy: Inflation, Unemployment, and the Jobs Report

More economic twists and turns arrived in October. While the uptick in inflation to 2.6% was modest and unemployment held at an expected 4.1%, the U.S. economy added only 12,000 (nonfarm) jobs in October, the slowest pace of job creation since December 2020. The ongoing labor strike at Boeing subtracted thousands of jobs in the manufacturing sector, while massive hurricanes in Florida and North Carolina likely reduced growth as well. Financial markets are already pricing in a strong likelihood that the Fed will cut interest rates by at least 25 basis points when the central bank holds its final meeting of 2024 on December 17-18.

Inventory: Demand, and Affordability

Housing inventory has been slowly rising since March, and its continued growth will help ease the upward momentum of home prices. Besides a modest uptick from mid-September through mid-October (when mortgage rates were under 6.5%), demand was virtually identical year-over-year. The market has slowed considerably, which is normal in December while people are more focused on the holidays.

 

However, there are signs that affordability is starting to improve. The National Association of Realtors (NAR) Housing Affordability Index rose to 105.5 in September, up from 99.1 in August and 93.8 in July. A national index reading below 100 indicates that a median-priced home is unaffordable for the typical family earning a median income. Clearing 100 is a great step in the right direction. And according to Brian D. Luke, chartered financial analyst (CFA) at S&P Dow Jones Indices, “Home price growth is beginning to show signs of strain, recording the slowest annual gain since mortgage rates peaked in 2023."

Though it's been a roller-coaster year, we are still in the most buyer-friendly market since 2022. Orphe Divounguy, senior macroeconomist at Zillow Home Loans, provides this reasonable advice: “The best time for prospective buyers is when they find a home that they like, that meets their family’s current and foreseeable needs, and that they can afford.” Once rates fall and stay below 6.5% for a steady period of time, the market will warm up. In the meantime, competition is less frenzied, potential buyers have time to review their options, and sellers on the market longer are more willing to negotiate. The current low inventory protects against a market crash, and housing remains a reliable long-term investment.

 

We'll keep you posted on trends and trajectories as the market continues to adjust, and as always, please don't hesitate to reach out to us if you have any questions!

 

 

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