The American housing market continues to struggle, with existing home sales projected to hit their lowest levels since 1995 for two years running.
Buyers remain hesitant to enter the market due to a combination of steep home prices and high mortgage rates. Data from the National Association of Realtors (NAR) reveals that sales of previously owned homes during the first three quarters of 2024 fell below last year’s numbers.
The September figures paint a particularly concerning picture, with sales dropping to a seasonally adjusted annual rate of 3.84 million units – the lowest monthly figure recorded since October 2010. This represents a 1% decline from August and a 3.5% decrease compared to September 2023, exceeding economists’ predicted 0.5% monthly decline.
Despite initial optimism from industry experts about a potential recovery in 2024, the market has remained stagnant. The Fed’s recent interest rate adjustment failed to provide the anticipated relief, as mortgage rates have remained stubbornly high. This persistent rate environment, combined with rising home prices due to limited inventory, continues to create affordability challenges for potential buyers. Additional factors complicating the market include escalating home insurance costs and pre-election uncertainty.
Lawrence Yun, NAR’s chief economist, summarized the situation bluntly: “Americans are really not moving.” He suggests that 2024’s total existing-home sales might match or even fall below last year’s disappointing numbers.
A brief ray of hope appeared in September when mortgage rates dipped to 6.08%, marking a two-year low. However, this decrease came too late in the annual buying cycle to significantly impact sales, as most families prefer to move during spring and summer months to align with school schedules. Moreover, rates have since climbed for three consecutive weeks, reaching their highest point since August.
The current market presents a complex dynamic where mortgage rates generally follow 10-year Treasury yields, which have exceeded 4%. However, the gap between these rates has widened beyond historical norms, further increasing borrowing expenses. Lenders who sell mortgages to investors face demands for higher returns due to increased rate volatility, as mortgages carry more risk than government bonds.
Despite challenging conditions, some buyers are finding opportunities. The median existing-home price reached $404,500 in September, reflecting a 3% year-over-year increase. While this represents the highest September price on record, buyers face less competition, with homes typically spending 28 days on the market compared to 21 days the previous year.
Housing affordability has emerged as a key political issue, with both major parties proposing solutions. The current administration, through Vice President Harris, has introduced initiatives for increased housing construction and down payment assistance, while former President Trump’s platform includes reducing regulations and expanding building opportunities on federal lands.
The inventory situation shows mixed signals, with available homes up 23% from last year but still below typical market levels. Many homeowners remain reluctant to sell, as they would need to trade their existing low-rate mortgages for significantly higher rates on new purchases. The market currently has a 4.3-month supply of homes, just barely meeting the minimum threshold for a balanced market between buyers and sellers.
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