by Calculated Risk on 7/27/2024 08:11:00 AM
The key report this week is the July employment report.
Other key reports include Case-Shiller house prices for May, ISM manufacturing index and July vehicle sales.
The FOMC meets this week and no change to the Fed Funds rate is expected.
—– Monday, July 29th —–
10:30 AM: Dallas Fed Survey of Manufacturing Activity for July.
—– Tuesday, July 30th —–
9:00 AM: S&P/Case-Shiller House Price Index for May.
This graph shows the year-over-year change in the seasonally adjusted National Index, Composite 10 and Composite 20 indexes through the most recent report (the Composite 20 was started in January 2000).
The consensus is for a 6.0% year-over-year increase in the Comp 20 index for May.
9:00 AM: FHFA House Price Index for May. This was originally a GSE only repeat sales, however there is also an expanded index.
10:00 AM ET: Job Openings and Labor Turnover Survey for June from the BLS.
This graph shows job openings (yellow line), hires (purple), Layoff, Discharges and other (red column), and Quits (light blue column) from the JOLTS.
Jobs openings increased in May to 8.14 million from 7.92 million in April.
The number of job openings (yellow) were down 13% year-over-year and Quits were down 14% year-over-year.
—– Wednesday, July 31st —–
7:00 AM ET: The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.
8:15 AM: The ADP Employment Report for June. This report is for private payrolls only (no government). The consensus is for 168,000 payroll jobs added in June, up from 150,000 in May.
9:45 AM: Chicago Purchasing Managers Index for July.
10:00 AM: Pending Home Sales Index for June. The consensus is for a 1.5% increase in the index.
10:00 AM: the Q2 2024 Housing Vacancies and Homeownership from the Census Bureau.
2:00 PM: FOMC Meeting Announcement. No change to the Fed Funds rate is expected.
2:30 PM: Fed Chair Jerome Powell holds a press briefing following the FOMC announcement.
—– Thursday, August 1st —–
8:30 AM: The initial weekly unemployment claims report will be released. The consensus is for 230 thousand initial claims, down from 235 thousand last week.
10:00 AM: ISM Manufacturing Index for July. The consensus is for the ISM to be at 49.0, up from 48.5 in June.
10:00 AM: Construction Spending for June. The consensus is for a 0.2% increase in construction spending.
Late: Light vehicle sales for July from the BEA. The consensus is for light vehicle sales to be 16.2 million SAAR in July, up from 15.3 million in June (Seasonally Adjusted Annual Rate).
This graph shows light vehicle sales since the BEA started keeping data in 1967. The dashed line is the sales rate for last month.
—– Friday, August 2nd —–
8:30 AM: Employment Report for July. The consensus is for 175,000 jobs added, and for the unemployment rate to be unchanged at 4.1%.
There were 206,000 jobs added in June, and the unemployment rate was at 4.1%.
This graph shows the jobs added per month since January 2021.
The cheapest streets in Stanley have been revealed following research by a sales company.
Property Solvers used five years of sold house price data from HM Land Registry, tracking the average sold price data since 2019.
It found that Rydal Avenue, Pine Street and Grasmere Terrace host some of Stanley’s lowest-valued properties.
On Rydal Avenue, four properties fetched an average of £32,862.
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While four properties on Pine Street averaged £33,248 and eight houses on Grasmere Terrace were sold for an average of £33,487.
Ruban Selvanayagam, co-founder of Property Solvers commented on the methodology used, saying: “To keep the data less skewed, we only ranked the streets that had over three sales.”
William Street and Jane were also among those with low house prices in Consett, with properties selling for averages of £35,600 and £38,275 respectively.
The full list of the cheapest streets in Stanley, complete with number of sales since 2019, can be found below:
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Rydal Avenue: Average Price £32,862, Number of Sales 4
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Pine Street: Average Price £33,248, Number of Sales 4
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Grasmere Terrace: Average Price £33,487, Number of Sales 8
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Fourth Street: Average Price £34,333, Number of Sales 3
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William Street: Average Price £35,600, Number of Sales 5
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Moore Street: Average Price £35,833, Number of Sales 3
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Pine Street: Average Price £38,200, Number of Sales 5
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Jane Street: Average Price £38,275, Number of Sales 4
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Poplar Street: Average Price £38,499, Number of Sales 10
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Elm Street: Average Price £39,428, Number of Sales 7
And it described the difference between house prices in Edinburgh and the rest of Scotland as “extraordinary”.
David Alexander, chief executive of DJ Alexander Scotland, said: “The gap in house prices between Edinburgh and the rest of Scotland has grown enormously over the last decade, with the average price now £327,751 in the capital compared to £191,435 across the rest of the country. That is a difference of £136,316. The difference with Glasgow is even greater, rising to £151,696.”
READ MORE: Ian McConnell: More success for Scotland. Everyone happy? Thought not
He added: “When you examine average prices for detached homes, the gap between Edinburgh and the rest of Scotland is more marked. A detached home in Edinburgh is now £715,794 on average while in the rest of Scotland [it] is £336,060 lower at £379,734.
“There is an extraordinary difference between the capital and the rest of Scotland and there is a risk that Edinburgh becomes unaffordable for people moving into the city in the future, but appropriate action now will ensure the capital remains accessible.”
DJ Alexander said that, over the decade to 2021, Edinburgh benefited from double-digit-percentage population growth. The property agent flagged an influx of “well-qualified, well-paid, working-age people from around the world”, declaring this had “transformed” the Scottish capital’s economy and housing market.
READ MORE: Ian McConnell: Is a boost for homeowners on the cards?
It added: “Hosting the largest arts festival in the world has grown Edinburgh’s international status, attracting people to live and work, resulting in a population growth far in excess of the rest of Scotland. There is strong international interest from buyers from across the world with the New York Times running a feature this month showing what $600,000 could buy in the capital.”
DJ Alexander declared that, in the decade to 2021, Edinburgh’s population grew by 10.2%, compared with a rise of 3.4% for Scotland as a whole.
It observed “the capital’s working-age population grew by 8.6% during this period, compared to 0% growth for the rest of Scotland”.
DJ Alexander said: “The bulk of this population growth is in overseas migration and Edinburgh has the highest growth of any of the eight largest cities in the UK excluding London.
“With 82.2% of the population economically active, Edinburgh tops all UK cities, including London which has 78.6% and Glasgow on 73.6%. The capital’s unemployment rate of 2.6% is the lowest in the UK and its median hourly pay of £17.70 is the highest outside London.”
READ MORE: Ian McConnell: Time to stop kicking Ferguson Marine shipyard around
The lettings and estate agency added: “The news gets even better as the figures show that the capital has the largest percentage of high-skill jobs in the UK with the most graduates, 79.5%, of any city, producing the highest GVA (gross value added) per capita – £48,300 – of any city in the UK apart from London.
“The bulk of the high GVA – £6.1bn – comes from finance and insurance services, with real estate activities the second-highest producer of value at £3bn annually. Edinburgh has the highest-value residential property market in Scotland with sales in the capital representing 46% of the residential market value of all Scottish cities.”
Mr Alexander said: “These multiple factors have produced a city that is growing rapidly and extending its growth into the surrounding areas around Edinburgh, producing major housebuilding programmes resulting in prices rising steadily in East [Lothian], West [Lothian] and Midlothian.”
He offered his view that “encouraging greater investment by property investors and support for landlords would produce a steady flow of suitable homes for the well-educated, well-paid, working-age people flooding into the city keen to live and work in a dynamic and lively location”.
Mr Alexander added: “To mitigate wider demand, there needs to be more housebuilding generally and a substantial increase in the volume of social housing is essential. Amazingly Edinburgh has a further advantage over the other major cities in the UK in that it is the least densely populated, allowing for further building in the future. A growing Edinburgh is a positive sign of a growing Scotland and should be welcomed.”
Edinburgh’s house price growth is inevitable due to its unique circumstances according to DJ Alexander.
The lettings and estate agency said that over the last decade Scotland’s capital has benefitted from double digit population growth of well-qualified, well-paid, working age people from around the world which has transformed its economy and its housing market.
Hosting the largest arts festival in the world has grown Edinburgh’s international status attracting people to live and work resulting in a population growth far in excess of the rest of Scotland. There is strong international interest from buyers from across the world with the New York Times running a feature this month showing what $600,000 (c. £466,000) could buy in the capital.
In the decade to 2021 Edinburgh’s population grew by 10.2% compared to a rise of 3.4% for Scotland as a whole. The capital’s working age population grew by 8.6% during this period compared to 0% growth for the rest of Scotland.
The bulk of this population growth is in overseas migration and Edinburgh has the highest growth of any of the eight largest cities in the UK excluding London.
With 82.2% of the population economically active Edinburgh tops all UK cities including London which has 78.6% and Glasgow on 73.6%. The capital’s unemployment rate of 2.6% is the lowest in the UK and its median hourly pay of £17.70 is the highest outside London.
The news gets even better as the figures show that the capital has the largest percentage of high skill jobs in the UK with the most graduates (79.5%) of any city producing the highest GVA per capita of £48,300 of any city in the UK apart from London.
The bulk of the high GVA (£6.1 billion) comes from finance and insurance services with real estate activities the second highest producer of value at £3bn annually. Edinburgh has the highest value residential property market in Scotland with sales in the capital representing 46% of the residential market value of all Scottish cities.
David Alexander, the chief executive officer of DJ Alexander Scotland, said: “These multiple factors have produced a city that is growing rapidly and extending its growth into the surrounding areas around Edinburgh producing major housebuilding programmes resulting in prices rising steadily in East, West and Midlothian.
“The gap in house prices between Edinburgh and the rest of Scotland has grown enormously over the last decade with the average price now £327,751 in the capital compared to £191,435 across the rest of the country. That is a difference of £136,316. The difference with Glasgow is even greater rising to £151,696.”
He added: “When you examine average prices for detached homes the gap between Edinburgh and the rest of Scotland is more marked. A detached home in Edinburgh is now £715,794 on average while in the rest of Scotland is £336,060 lower at £379,734.
“There is an extraordinary difference between the capital and the rest of Scotland and there is a risk that Edinburgh becomes unaffordable for people moving into the city in the future, but appropriate action now will ensure the capital remains accessible.”
EDITOR’S NOTE: Tipping Point? is a journalistic initiative launched by Advance/SILive.com to inform Staten Islanders how NYC’s City of Yes for Housing Opportunity proposal could impact the borough. The plan, which will be voted on by the City Council this year, calls for significant zoning changes designed to spur development of new homes and apartments amid a citywide housing shortage.
STATEN ISLAND, N.Y. – As the City of Yes for Housing Opportunity continues its period of public review, many Staten Islanders are asking how the controversial zoning proposal will affect property values in the borough.
Will the sudden allowance of accessory dwelling units (ADUs) on properties currently zoned for one- or two-family houses cause home prices to spike? The extra living space driving market value higher?
Or will property values drop? With town center zoning and transit-oriented development significantly altering the nature of several Staten Island communities?
Such zoning changes, which are being proposed to temper a citywide housing shortage, have been criticized by Staten Island community boards and elected officials for both those scenarios.
But the Department of City Planning says similar changes have historically had minimal impact on city property values and that while taxes may be impacted, it will be a slight increase.
“Extensive research and evidence from other cities and states shows that ADUs do not have significant effects on the property value of nearby homes,” the agency recently noted in a 12-page Frequently Asked Questions document responding to a host of residential concerns. “If you choose to add an ADU, your assessed taxes may increase slightly…ultimately, each homeowner will decide whether a possible, slight tax increase is a worthwhile tradeoff for the value of extra housing space or rental income.”
In order to make sense of possible property value effect, the Advance/SILive asked several real estate experts to weigh in on the topic. Here’s what they had to say:
David Burney, co-founder and director of the Urban Placemaking and Management program at the Pratt Institute School of Architecture, former member of the New York City Planning Commission.
“My criticism of City of Yes is that it’s not ‘one-size-fits-all,’ in fact it’s probably not even ‘one-size-fits-most.’ What’s missing is a neighborhood planning approach. You need to identify the right fit for each community.
I think Staten Islanders have a legitimate concern because [the borough] is very different than other parts of the city. Let’s assume the administration is 100% successful and lots of housing is built – we need it, can’t argue there – what are the consequences on Staten Island?
What about transportation, healthcare, schools, recreation — all things that need attention with increasing population and density. That isn’t happening with a blanket zoning change.
My criticism is that this is not a substitute for actually looking at each neighborhood and identifying the needs.
Having said that, what are the good things?
Accessory dwelling units. Arguably they are allowing for an increase in property value. Homes will now have an extra room or granny flat and will undoubtedly sell for more. Allowing for that could have impact in increasing property value.
There are places in this country where an increase in property value is good thing; homeownership at a higher level increases wealth. But increasing property value can also be bad for those looking to purchase. That’s why we have to look at each community individually.”
Burnery has served as commissioner of the New York City Department of Design and Construction and worked as chief architect for the New York City Housing Authority from 1990 to 2004. He recently authored a chapter in Housing the Nation: Social Equity, Architecture, and the Future of Affordable Housing (Rizzoli, 2024).
Margery Perlmutter, land use lawyer, architect and former chair and commissioner of the NYC Board of Standards and Appeals.
“I’m aware that Staten Islanders have problems with the City of Yes proposal, but I think there are some misconceptions about what will be allowed for Staten Island.
The Universal Affordability Preference or UAP [which would permit buildings to add at least 20% more housing if the new units are affordable to households earning 60% of the area median income, allowing for the development of new affordable housing in high-cost neighborhoods] only applies in higher density zoning districts. That’s R-6 and up. I looked at Staten Island’s entire zoning map and ID’d one tiny area on the map that’s an R-6. So basically UAP does not apply in Staten Island. I’m very aware of the Island’s uniqueness. It’s because of that uniqueness that it gets excepted out of many changes.
In terms of neighborhood impact, decades ago, Harlem, the Lower East Side and large swaths of Fort Greene were empty waste lands. The government came in and built subsidized affordable housing there and today those exact same areas have some of the highest median incomes in the city.
That tells you if a neighborhood is not doing well, when the government helps and brings in good quality housing, it jump starts improvement.
Fort Greene is now one of the most desirable, trendy areas in the city. Fifty years ago it was neglected and dangerous.
Finally, as a last point, I think it’s important to consider who is a low-income earner. I think the gut reaction and opposition to affordable housing is the assumption that it is for people who live off the system and do not work. But in reality, New York government and city employees earn well under $80,000 and Staten Island is representative of that working class.”
Perlmutter is the founding member of URBAN FACTORS, a land use and development consulting firm. She also recently authored a chapter in Housing the Nation: Social Equity, Architecture, and the Future of Affordable Housing (Rizzoli, 2024).
Joe Tirone, founding broker of the Stapleton-based Compass Real Estate Staten Island, who has been actively involved in Staten Island real estate for three decades.
“City of Yes is yet another instance where Staten Island loses its identity to Manhattan centric zoning laws. This has happened since the Verrazzano Bridge was built in 1964. Staten Island infrastructure and topography have always been at odds with the rest of New York City.
Residents have protested on occasion, and exceptions have been made to zoning laws to recognize these differences, such as Hillside Preservation restrictions that are unique to the borough. However, Staten Island continues to search for its new identity and ADU’s will further dilute any efforts to do so.
There will be a likely uptick in real estate values as permitted square footage increases along with the potential for extra income for homeowners for the new ‘units’ this can create.
It seems that town center zoning was created uniquely for Staten Island by proposing to increase density around [Staten Island Railway (SIR)] stations. The concept is that you are less car reliant if you live in walking distance to a station – but from what I can gather, the permitted increase is not substantial enough to promote redevelopment. However, this does not eliminate the need for a car, as access to SIR may get you to the rest of the city (after a very long commute), but the train is limited in getting one to other areas of the Island without having to transfer to a bus on very busy streets (such as going to the mall, for instance).
I’ve heard that all three Staten Island Community Boards rejected City of Yes provisions, but that has not stopped the mayor or influenced him in any meaningful way. This has the potential to erode quality of life here, as the additional density will be in direct conflict with our inferior public transportation.
One thing is for sure, anyone who takes advantage of the program will be subject to potentially high increases in real estate taxes. The City of Yes was purportedly meant to create affordable housing and ease the homeless crisis, however, you must wonder whether it was actually created as a way to increase taxes. I’m quite sure that was on the mayor’s radar, if not the first bullet point.”
Annmarie Triolo, Broker/Owner of Triolo Realty Group, Prince’s Bay
“The City of Yes and the rezoning that it proposes cannot and should not be one-size-fits-all, especially since Staten Island is such a unique borough. We are mainly a driving community, and do not have a substantial public transportation structure in place.
Adding accessory dwelling units and allowing for more apartment buildings as well, will set the need for more parking spaces creating a more congestive community [and] decreasing the suburban appeal that Staten Island now retains.
Furthermore, it’s no big secret that the infrastructure on Staten Island took a beating after Super Storm Sandy and have been left deficient for our current residents as we stand now. More construction will only exacerbate the issues our communities are already facing even if the current deficiencies are addressed beforehand. We just can’t handle the volume they’re proposing.
Do I think that it will decrease the value of homes? That’s kind of a double-edged question. I think the lack of housing will be an issue we deal with for many years to come regardless of how many units are built and that in itself will increase the value of homes. People who need to live on the Island will be on the Island regardless of price. Those who have the ability and lifestyle to explore other options will skip over the bridge to New Jersey for a less congestive living experience at cheaper pricing.”
More Stories About NYC ‘s Rezoning Proposal
According to the report, more than 33,000 new homes have been built around the line’s London stations since 2009. This accounts for more than 10% of all the new homes built in the capital over this period. Development activity peaked in 2021 when almost 5,000 new homes were built, accounting for over a fifth of the total homes built in London that year.
As a result, sales in the areas surrounding the stations have been robust since 2009, reaching a peak in 2021 at just over 7,000. Overall, almost 70,000 homes have been sold around the stations between 2009 and 2023. This equates to an average of 3,000 home sales per station along the line, the majority of which have been new build properties.
Actual rents for homes around stations averaged £1,676 in 2023, 8% higher than the rents achieved in the wider boroughs. Hanwell, Canary Wharf and Acton Main Line recorded the strongest rental growth at 18-20% since the line opened. This suggests, for example, that Acton Main Line’s new 12-minute journey time into central London has boosted rents significantly.
The Line has also unlocked a significant volume of new rental homes. Of the 33,000 new homes built, just over a fifth have been Build-to-Rent (BTR). This equates to 7,000 new rental homes delivered around the Elizabeth Line stations, and accounts for 16% of London’s total BTR supply over this period. The bulk of these homes have been built around Canary Wharf, Stratford, and Woolwich stations, where a total of 14,000 homes have been delivered, and large-scale regeneration has also taken place.
U.S. median home prices hit a record high for the second month in a row as sales continued to fall, according to a report released this week, as potential buyers continue to lie in wait for lower mortgage rates.
Existing home sales fell 5.4% in June and median home sales reached its highest level on record since prices were first tracked by the National Association of Realtors in 1999. The median price rose the most in the northeast region at 9.7%. In June, existing home sales plummeted 8% in the Midwest, the greatest fall among the regions, according to the report released on Tuesday.
New home sales, released on Wednesday by the U.S. Census Bureau, fell 0.6% in June and is 7.4% lower than new home sales a year ago. The median sales price of a new home was $417,300, lower than the existing home sales median price of $426,900. Housing experts say that this closeness in price is unusual, since new homes have usually sold for much more in the past 10 years and may be reflective of changing demands for smaller and more affordable homes.
Despite that change, these two measures have shown that home prices still remain out of reach for many and that in response, sales have been slow. What is driving these prices and when will they abate? Housing economists say there are many factors at play, including Fed policy and an aging population.
Why are home sales low and home prices high?
High demand for homes and lower inventory levels have contributed to higher home prices in recent years. These expensive home prices and high mortgage rates have resulted in this housing market shift.
Matthew Walsh, economist at Moody’s Analytics, said low housing affordability and the “persistently high” mortgage rate is contributing to cooling housing activity. Unless housing becomes more affordable soon, he said he expects to continue to see lower existing home sales. The 30-year fixed mortgage rate was 6.78% as of July 25, according to Freddie Mac.
“Buyers are very responsive to mortgage rates and with the information being so readily available and the anticipation that mortgage rates are going to come down, I think that’s keeping people on the sidelines,” said Selma Hepp, chief economist at CoreLogic.
But she said homebuyers face a double-edged sword. When mortgage rates do come down, there will be a lot of pent-up demand that will also put pressure on home prices. A rise in cash buyers could also be pushing prices higher, Hepp said. All cash buyers were 28% of home transactions in June.
“A lot of these cash buyers are actually baby boomers who maybe cashed out on their existing home. We do know that home equity is at an all-time high and if you’re moving from a very expensive home price area to a lower-priced area, you obviously will have a lot of cash,” she added.
Housing inventory is changing but is it enough?
One bright spot for homebuyers is that total housing inventory has been rising. Inventory increased 3.1% from May and was up 23.4% from a year ago according to the June existing home sales report. Walsh said some households may be deciding they can’t wait to make a life change and are moving out of homes for larger or smaller options.
“It’s a lot of households that can no longer postpone plans to sell, whether that’s because their household is expanding because they’re having children or it’s shrinking and they need to sell their larger home in the Northeast and move to a smaller home to retire in the South,” Walsh said. “They can no longer put up with the homes that they’re in and sacrifice their low mortgage rate for a higher rate.”
Still, Hepp said the inventory is far lower than pre-pandemic levels and where demand has picked up — in Boston, New York, and Chicago, for example — there’s not a proportionate increase in the supply of housing.
Some homebuyers may be watching the Fed’s plans to cut interest rates, which affect mortgage rates, for some financial relief. A majority of economists say they believe the Fed will cut rates in September and December, according to a recent Reuters poll. Cutting rates may help bring some buyers back into the market and pump up inventory, but the effect will likely not be strong enough to bring home sales back to where they were before the pandemic, Walsh added.
What is the government doing?
The Biden administration announced a flurry of proposals this month to make housing more affordable, some of which would impact homebuyers as well as the repurposing of public lands in Nevada to bring at least 15,000 affordable rental and homeownership units to the area. In February, the White House also announced the opening of grant applications for assistance to homeowners to replace dilapidated homes.
Donald Trump, the Republican nominee for president, said at a July rally in Iowa that he would address problems in the housing market through cutting interest rates, according to Newsweek. Although presidents nominate the chair of the Fed for a four-year term, they do not have power over whether the Fed cuts rates.
States have been pursuing their own policies to improve housing inventory and affordability, including Utah and Oregon, which passed legislation to use funds for loans to developers who plan to build more affordable homes. A Maryland bill signed into law by Democratic Gov. Wes Moore in May would push property owners to make plans for vacant properties by letting cities raise taxes on those properties.
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- Housing market conditions should improve throughout the rest of 2024. But prices are likely to continue climbing.
- Mortgage rates are expected to go down this year, which should help boost demand.
- Most major forecasts predict that home prices will end 2024 between 3.8% and 6.1% higher than the year before.
The 2024 homebuying season has been a tough one, leaving many hopeful buyers wondering if they’ll ever get an opportunity to purchase a home.
While a housing market crash remains unlikely and home prices probably won’t drop anytime soon, it is starting to look like it will get easier to buy a home in the coming months and years.
How should borrowers expect the housing market to evolve throughout the rest of the year? Let’s take a look at the latest predictions.
Overview of the 2024 housing market
In the first half of 2024, homes became more expensive than ever, mortgage rates seemed stuck near 20-year highs, and housing inventory stayed tight. As a result, interest in buying a home remained relatively low.
In June 2024, the average home value rose 3.8% year over year to $363,438, according to Zillow. The average 30-year mortgage rate was 6.92% for the month, according to Freddie Mac data. Though rates are down from when they peaked near 8% in October 2023, they’re still prohibitively high for may borrowers.
The good news is that conditions are expected to improve throughout the second half of this year, setting up for a much better homebuying season in 2025.
Why are home prices so high?
Real estate is an appreciating asset, which means that home values typically increase over time. Though they do drop occasionally, like they did during the Great Recession, prices have historically trended up.
Home prices, like a lot of things, are driven by supply and demand. During the pandemic, demand for homes shot up as mortgage rates fell and people had more money to spend. As a result, prices started rising faster than normal.
Low supply only made affordability worse. Short-term trends may have played some part in this, since many sellers delayed listing their homes during the pandemic, either due to COVID concerns or out of a reluctance to enter a frenzied market as a buyer.
Together, these forces caused home prices to climb up at an astonishing rate. Now that they’re so high, many are wondering if they’ll ever come back down. But because supply is chronically tight, any drops we might see would likely be relatively moderate.
Key trends shaping the housing market in 2024
Economic factors
The Consumer Price Index, a key measure of inflation, peaked at 9.1% year over year in June 2022. This led the Federal Reserve to start aggressively raising the federal funds rate to bring inflation back down. High inflation and pressure from the Fed’s hikes helped push mortgage rates up, slowing homebuying demand.
Fortunately, inflation has since cooled substantially, rising just 3.0% year over year in June 2024, and the Fed is expected to start lowering its benchmark rate later this year.
Mortgage rates
Though mortgage rates have been trending down in recent months, they’re still higher than what many homeowners and buyers are used to. From 2010 until 2020, the average 30-year mortgage rate was 4.09%, according to Freddie Mac data. Then, during the pandemic, rates dropped even lower, reaching an all-time low of 2.65% in January 2021.
Because rates have been so high in recent years, many would-be buyers have refrained from entering the market. This has helped moderate the pace at which home prices rise, but it’s also kept sellers from listing their homes, since many have mortgages with low rates and are reluctant to give that up. This lock-in effect constrained housing supply and helped keep prices from falling, even as rates spiked.
Housing supply and demand
Low housing supply is a chronic problem in the U.S. And it’s a big part of why homeownership continues to get more expensive each year, even as demand has been sluggish.
Doug Duncan, Fannie Mae’s senior vice president and chief economist, says most analysts believe the lack of supply has driven the dramatic price increases we’ve experienced over the past few years. From the start of 2020 to now, the average home price has grown by more than $110,000, according to Zillow data.
“Starting back in 2015, house prices since then have been appreciating at significantly faster than the long term average,” Duncan says.
In its 2021 research note “Housing Supply: A Growing Deficit,” Freddie Mac estimated that the U.S. was 3.8 million units short of a healthy housing supply. The problem is especially pronounced when it comes to entry-level homes.
There are two main ways to add to the housing supply: listing existing homes for sale, and building new ones. Part of the problem is that the baby boomer generation is holding onto a lot of real estate, and they aren’t leaving their homes to live in retirement communities or assisted living facilities at the same rate previous generations have.
“Right now, the boomers are doing what they said they were going to do, which is aging in place,” Duncan says.
That’s not to say it’s a bad thing that older adults are able to remain independent for longer, often thanks to advances in technology and telehealth, but it cuts off a key source of inventory that isn’t added elsewhere. When younger adults sell their homes, for example, they’re typically also looking to buy another, increasing turnover, not supply.
The bigger problem is that new homes aren’t being constructed at a fast enough pace to meet demand. According to the Freddie Mac research note, “The main driver of the housing shortfall has been the long-term decline in the construction of single-family homes.”
Duncan says that the Great Recession destroyed around 75% of the housing supply chain. During this time, nobody was building houses, so a lot of workers exited the industry, and many businesses shut down.
The supply chain is still recovering from this, and after decades of underbuilding entry level homes, builders are having a hard time meeting demand for affordable inventory.
Predictions for 2024 housing market
Price trends: Will home prices drop in 2024?
Most major forecasts don’t expect home prices to drop in 2024. Here’s where some of the major industry players currently think home prices will end up by the end of the year:
According to these forecasts, home prices could rise anywhere between 3.8% and 6.1% in 2024.
Looking even further ahead, the Mortgage Bankers Association believes that prices will increase another 3.3% in 2025, and Fannie Mae believes we could see prices rise 3.0%. NAR estimates that prices could increase about 2.0% next year.
Of course, it’s hard to say with certainty what will happen in the coming months and years. In January 2023, many experts were expecting prices to fall a bit to compensate for the unusually high increases we saw in the previous two years. But based on what we know right now, it’s unlikely that home prices will drop soon.
Local housing market forecasts
The U.S. housing market is made up of a bunch of smaller, local markets that all have their own trends and influences. So even though home values are expected to rise overall throughout the next couple of years, it’s possible prices could ease slightly in your area. This is especially true in places where home prices boomed during COVID and are due for a correction.
For example, home prices in Austin, Texas have been steadily declining since they peaked in mid-2022 and are now down 4.3% year over year, according to Zillow.
You can use an online listing site like Zillow or Redfin to see what the housing market looks like near you, or talk to a local real estate agent to get a sense of how prices are likely to trend in your community in 2024 and beyond.
Is it a good time to buy a house?
So, is now a good time to buy a house? Duncan says that his answer to this question is the same now as it was 20 years ago: If it fits your budget, it’s the right time to buy.
“Because you don’t know whether interest rates are going to go up or down in the long term, and you’re simply making a housing decision, as opposed to an investment decision,” he says.
For most people, it’s not about trying to time the market.
“A lot of us are just buying a house to live in and take care of our household and family and all that,” Duncan says.
Many hopeful buyers are planning to wait for mortgage rates to go down before jumping into the market. While this will definitely make getting a mortgage more affordable, you could end up facing even higher home prices by the time mortgage rates come down.
One advantage to buying now is that you’ll avoid the inevitable increased competition and higher home prices that come with lower mortgage rates. Plus, you can save down the road by refinancing into a new mortgage once rates have dropped.
In fact, some lenders are even offering “buy now, refinance later” deals for those who buy when rates are high.
If you’re considering buying now, be sure to shop around and compare offers to find the best mortgage lender for you. By getting multiple quotes, you can ensure you get a good deal.
Will home prices drop FAQs
For the rest of 2024, the housing market should be helped by decreasing mortgage rates, but inventory will likely remain tight. Lower mortgage rates combined with low supply could push home prices up further.
Interest rates on mortgages are expected to ease throughout the remainder of 2024, but we may not see them drop substantially until next year. So while we may see a small increase in demand due to lower rates, many potential borrowers appear to be waiting for rates to drop further before entering the market.
The housing market will likely continue to be a challenge for both buyers and sellers in 2024, though conditions should improve somewhat as mortgage rates drop. But 2025 will likely be a better year for the housing market.
Most experts don’t believe home prices will drop — though the pace of increases could start to slow in 2024 and 2025. We’ll probably see prices increase modestly throughout the next couple of years.
You probably shouldn’t wait for a recession to buy a house. There’s no telling when a recession might happen, and if it does, it might not significantly impact home prices. Additionally, a recession could put you in a place where you can’t afford to buy a house, even if prices do come down.
Home prices are high now and they’re expected to rise a bit further in 2024, so whether you should sell now or later largely depends on how selling fits into your plans. Keep in mind that if you plan to buy another home, you’ll have to deal with today’s mortgage rates, which are still relatively high. But rates should go down later this year.
A housing market crash would make homes cheaper, but the reality for homebuyers isn’t as simple as that. A market crash would likely cause economic distress in other sectors as well, making people less able to afford to buy a home. Experts don’t currently expect the housing market to crash in 2024.