The housing market is showing signs of entering a transitional phase, with summer sales being tepid but potential for increased activity by the end of the season. Mortgage rates are edging down, and resale inventory is entering the market, giving buyers more options. The median price for a new home is declining, making it more affordable for buyers. However, experts believe that the housing market will only see renewed momentum once mortgage rates drop further to ease affordability challenges and incentivize homeowners to move and increase inventory.
The U.S. home prices posted a 5.9% annual gain for May, indicating that home prices are still out of reach for many buyers. Affordability remains the main constraint on the housing market, but experts predict a move towards a more balanced market in the second half of the year. Zillow reports that roughly 25% of its listings saw price cuts in June, signaling a shift towards a buyer’s market. The Federal Reserve is expected to cut the federal funds rate in September, which could further impact mortgage rates.
For a housing recovery to occur, inventories of homes for sale need to increase significantly to ease upward pressure on home prices. Mortgage rates also need to cool off gradually to improve buyer opportunities over time. The housing market is expected to return to 2014-2019 levels once mortgage rates stabilize in the upper 4% to lower 5% range.
The National Association of Realtors (NAR) has agreed to pay $418 million to settle antitrust lawsuits filed in 2019 on behalf of home sellers. New rules will go into effect in August, prohibiting broker compensation offers on multiple listing services and shifting the responsibility of paying buyer broker commissions from sellers to real estate agents.
Despite more resale homes entering the market, the inventory shortage remains severe due to homeowners being locked in at low mortgage rates. New home construction has provided some relief, but more supply is needed to meet demand. Builder sentiment is declining, and new home sales have been impacted by high mortgage rates. Pending home sales are showing signs of improvement, with contract signings increasing in all U.S. regions.
Affordability challenges continue to hinder the housing market, with home prices and mortgage rates remaining high. The NAR Housing Affordability Index shows that a median-priced home is unaffordable for the typical family earning a median income. Prospective buyers are advised to know their budget, be flexible about home size and location, and keep an eye on the market where they hope to buy.
Experts believe that the likelihood of a housing market crash in 2024 is low, as the record low supply of houses on the market protects against a crash. Foreclosure activity remains low, with homeowners having substantial home equity. The best time to buy a home is when buyers find a home that meets their needs and budget, rather than trying to time the market.
In conclusion, the housing market is showing signs of a shift towards a more balanced market, with potential for increased activity in the coming months. Buyers and sellers are advised to be informed about market conditions and work with real estate agents to navigate the current landscape.