LOS ANGELES — The housing market shows few signs of escaping a three-year slump after a disappointing spring season and a gloomy outlook for the summer and fall.
Homebuyers entered 2024 with optimism that mortgage rates would ease further after falling late last year, but better-than-expected data on inflation and the economy have dampened those hopes as the timing of any interest rate cuts by the Federal Reserve becomes unclear.
By April, the average interest rate on a 30-year mortgage had risen above 7% for the first time since November. That, plus record home prices, have forced many would-be home buyers to postpone their search, some indefinitely.
Economists are predicting a modest decline in mortgage rates by the end of the year, but the slight drop in rates may not be enough to entice homebuyers or convince homeowners that it's a good time to sell.
Here's a look at the key trends behind the housing market's trajectory so far this year and what home buyers and sellers can expect in the second half of 2024.
The spring home-buying season was another disappointment.
On average, more than a third of homes sold in a given year are purchased between March and June, known as the spring home-buying season, which has declined in recent years.
U.S. existing home sales declined year over year from March through June in 2022 and 2023. Sales declined in March, April and May of this year, and there are signs of a decline in June as well.
The spring's slump in home sales reflects the challenges many homebuyers are facing: The average interest rate on a 30-year mortgage is hovering around 7%, the supply of homes for sale is historically low and home prices are at record highs.
High interest rates discourage home buying
The average interest rate on a 30-year mortgage is 6.95%, more than double what it was in early July 2021, according to mortgage buyer Freddie Mac.
Mortgage rates are influenced by several factors, including how the bond market reacts to the Fed's interest rate policy and trends in the 10-year Treasury yield, which lenders use as a guide for pricing mortgages.
The 10-year yield, which rose above 4.7% in late April, has mostly retreated recently in response to economic data pointing to slowing growth. That could help tame inflationary pressures and prompt the Fed to start cutting its key interest rate from its highest level in more than two decades.
Fed officials said in June that inflation has been approaching their 2 percent target in recent months and signaled they plan to cut interest rates once this year.
Still, economists are predicting that the average interest rate on a 30-year mortgage will exceed 6%.
Not enough homes for sale
Another obstacle for homebuyers is the historically low inventory of homes on the market.
The good news is that the number of homes on the market at the end of May was the highest since August 2022, which is on track to bode well for homebuyers this summer. The bad news is that the supply of homes available for sale nationwide remains well below pre-pandemic levels.
Before the COVID-19 pandemic, the supply of homes for sale across the U.S. was tight due to below-average new home construction in more than a decade and demographic trends that are leading homeowners to hold on to property longer.
The huge difference between current mortgage rates and those just three years ago (3%) is also discouraging many homeowners who secured mortgages at rock-bottom rates from selling, creating what real estate experts call a “lock-in” effect.
The price is not right
According to the National Association of Realtors, the national average sales price of an existing home rose 5.8% from a year ago to $419,300 in May, the highest price recorded since 1999. It's also 51% higher than it was just five years ago.
But price growth is slowing. U.S. home prices rose 4.9% year-over-year in May, the smallest increase since October, according to the CoreLogic Home Price Index. The real estate data tracker predicts that national home price growth will slow to 3% by next May.
“The sharp rise in mortgage rates this spring has dampened both homebuyer demand and prices,” said Thelma Hepp, chief economist at CoreLogic.
Home prices are cooling as more homes come onto the market, and price growth has slowed even in urban areas of states such as Florida, Texas and Georgia that saw a surge in homebuilding in recent years.
Some economists worry that a slight decline in mortgage rates without an increase in housing inventory could incentivize sellers to raise their asking prices, hurting buyers who are struggling to buy a home.
“I'm a little concerned about what would happen to home prices if interest rates were to fall, because I think that would stimulate demand without stimulating supply too much, at least in the short term,” said Daryl Fairweather, chief economist at Redfin. “If that happens, we could see prices skyrocket.”
Is there anyone who should buy now?
Homebuyers who can afford to buy now should benefit from the increased selection of homes on the market.
Those who can afford to pay all cash may want to buy one in the near future.
“Prices are going up and probably aren't going to come down, so if you're not waiting for interest rates to come down, there's no reason to wait,” Redfin's Fairweather said.