As more homebuyers hold off on purchasing, waiting for prices and mortgage rates to stabilize, some sellers are being forced to lower their asking prices.
In June, about 7% of sellers lowered their asking price, the highest percentage since November 2022, according to Redfin. It also marked the first time since pre-pandemic that a typical home sold for less than its asking price during the spring housing market season. But at the same time, the median sales price hit a new record of $397,250, driving many would-be buyers out of the market.
High mortgage rates continue to weigh on buyer demand, leading to a weak spring home-buying season: Home sales in May fell 0.7% from the previous month and 2.8% from a year ago, according to the National Association of Realtors.
“The housing market is struggling to regain momentum amid rising mortgage rates,” said Odeta Kusi, deputy chief economist at First American Financial Corp. “Higher mortgage rates have a negative impact on both demand and supply, with buyers who have lost purchasing power being priced out of purchases and some potential sellers remaining locked in at interest rates.”
But there are signs that the housing market is slowly regaining balance after several turbulent years. Nationwide, inventory levels are gradually improving as homes stay on the market longer, suggesting the housing market is becoming somewhat less competitive.
Erin Sykes, chief economist at Nest Seekers International, said motivated sellers are being flexible with their asking prices to attract buyers, especially in areas like Florida where property insurance costs have skyrocketed.
As home price growth slows and housing inventory builds, buyers may finally have more options and find it easier to buy.
As we reach the halfway point of 2024, I spoke to experts to ask them what they think will happen for the housing market going forward.
Why were home sales so slow this spring?
Home sales typically pick up significantly in the spring and early summer. The end of the school year is a good time for families to move rather than have kids transfer schools in the middle of the semester. And warmer weather makes it easier for people to tour properties. But in recent years, things haven't been so typical.
Home sales have shown little improvement from last year and remain at their lowest level in 30 years, according to Lawrence Yun, chief economist at the National Association of Realtors.
Mortgage rates and home prices are so high that many prospective homebuyers are choosing to remain in hibernation mode rather than take on the housing market in the spring.
According to a recent survey by the Mortgage Bankers Association, mortgage applications were still 10% below last year's pace as of the end of May.
Homeowners who need to sell their property quickly have little choice but to adjust the asking price to attract buyers.
Factors affecting today's housing market
Today's housing affordability crisis is about more than just rising mortgage rates: Rising borrowing costs, rising home prices and a limited housing supply are all converging to make homeownership increasingly out of reach.
Mortgage interest rates remain high
Rising mortgage rates have been plaguing the housing market for more than two years. At the start of 2022, the average interest rate on a 30-year fixed mortgage was nearly 3%. Since then, that figure has risen significantly (topping 8% last fall) in the wake of rising inflation and a series of interest rate hikes by the Federal Reserve.
Mortgage rates have fallen since their 2023 peaks but averaged above 7% through the spring, according to data from CNET sister site Bankrate.
Here's how rising mortgage rates have affected monthly payments on a $400,000 home with a 10% down payment.
30-Year Fixed Mortgage RateDown PaymentMonthly Mortgage PaymentLoan A3%10% $1,851Loan B7%10% $2,728Source: CNET's Mortgage Calculator
Home price growth has slowed, but not stopped
Demand for homebuying has soared during the pandemic without a matching supply, resulting in regular bidding wars and home prices rising by more than 40%, according to the Zillow Home Value Index.
Since then, price increases have slowed but not stopped completely.
Housing inventory has improved slightly since the pandemic but is still far from optimal, said Keith Gumbinger, vice president at mortgage information site HSH.com. “Slightly improved supply and demand, along with higher interest rates, have slowed price growth,” he added.
Housing shortage continues
The nation has been experiencing a housing shortage for nearly two decades, and the current high interest rate environment has made the situation worse.
Most people looking to sell their home have existing mortgage interest rates below 5%. If they were to sell their current home and buy a new one, they would face significantly higher mortgage rates. If mortgage rates fell, more homes could come onto the market. But it wouldn't completely improve the situation, as most sellers would become buyers.
Another piece of the inventory puzzle is new homes: Although 2022 was the best year on record for new home construction, the country still has an estimated shortage of 4.5 million homes, according to Zillow.
Just as homebuyers are facing rising mortgage rates, homebuilders are facing higher interest rates on construction and development loans, labor shortages, and limitations on the amount of land they can build on.
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What to expect from the housing market for the rest of 2024
Experts say the housing market has a long way to go before it recovers. “It's still a seller's market, but it could become more balanced by the end of the year,” Yoon said.
There are many moving parts in the housing market – mortgage rates, inventory, home prices – all of which are interconnected. Judging by the current situation, the housing market recovery over the next few years may be a bit like a domino effect, albeit a slow-moving one.
The first domino to fall will likely be mortgage rates, which should improve as inflation eases and the Federal Reserve begins to cut rates later this year. Most economic forecasts project the average rate on a 30-year fixed mortgage to be between 6% and 6.5% by the end of 2024.
Lower borrowing costs should encourage more sellers to put their properties on the market, which should (ideally) lead to an increase in new construction. This is already happening: 90% of markets have seen improved inventory levels compared to last year, according to Black Knight. The biggest increases have been seen across Florida, Austin and Denver.
The buildup of housing supply could push up the third domino: home prices. With more inventory on the market, Yoon expects home price growth to stabilize at around 2% to 3% annually.
While it's not yet a buyer's market, potential homebuyers have more negotiating power than they did a few years ago. Thanks to a slightly less competitive market, you probably won't have to forgo conditions like inspections and appraisals that were common during the pandemic housing market boom. You might also find some flexibility when it comes to asking price.
“Home prices have become more negotiable in recent months,” Sykes said, adding that coastal markets in Florida and New Jersey have already seen a 5% to 10% increase in negotiable list prices.
Also, if the seller won't budge on the price, they may be able to use points to lower your mortgage interest rate.
Slow change is better
A sudden drop in mortgage rates would certainly encourage many buyers to come off the sidelines, but it wouldn't solve the housing shortage anytime soon.
Indeed, home prices could soar again as buyers flock to the market for the still-limited inventory.
Ideally, house prices and mortgage rates would move toward equilibrium at the same pace. But that depends on a variety of economic factors. A slowdown in the labor market and a significant rise in unemployment could reduce demand for housing, driving prices down. Political policies could also play a role, especially with a general election due to take place this year.
How do you decide whether to wait or buy a home?
Buying a home is a big financial (and personal) decision. In today's housing market, it's natural that many people aren't sure if now is the right time to buy. But if you're asking others, like your real estate agent, whether you should wait or buy a home, realize that's a question that can't be answered.
First, experts recommend not trying to time the housing market: It's better to make decisions based on your own personal and financial circumstances.
Points to consider are:
How's your credit score? The higher your credit score, the better your chances of getting a lower interest rate on your future mortgage. Even a difference of just a few tenths of a percentage point can save you tens of thousands of dollars in interest over the long term, making homeownership more affordable.
Do you have a steady income and job security? Without a steady income, it may be difficult to comfortably pay your monthly mortgage payment and other costs of homeownership.
How long do you plan to live in your home? Home values tend to increase over time. The longer you live in your home, the more you benefit from that appreciation. Many homeowners use the equity they've built up through mortgage payments and rising home prices to put towards a down payment on their next property.
Do you have an emergency fund? Before taking out a mortgage, experts recommend setting aside an emergency fund that can cover several months' worth of living expenses (including housing costs) in the event of a medical emergency or loss of employment.
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