Real Estate Rundown February 2024
February 01, 2024
Photo credit Nathan Walker Via Unsplash
A Possible Thaw in The Housing Market
After a challenging period, the frozen housing market is showing signs of thawing. Mortgage rates have significantly dropped, prompting a surge in home sales and a spike in mortgage applications. December witnessed a shift, with new-home sales rising by 8%, pending home sales up by 8.3%, and mortgage rates dropping from above 7% to the mid-6% range. While this positive momentum is encouraging, experts believe it will take years for the housing market to fully normalize. The improvement is largely attributed to lower mortgage rates, making home buying more attractive. However, challenges persist, including affordability concerns due to high home prices and the expectation that rates, though fluctuating, will remain above 6%. The shortage of homes for sale, a major hurdle, is easing as more listings become available, and builders contribute to increased construction. Despite positive signs, the market's full recovery is uncertain, with analysts cautiously optimistic about the housing market's trajectory in the coming months.
2023 Housing Market Analysis
Existing-home sales in the U.S. declined in December 2023, marking the lowest annual level since 1995, as reported by the National Association of Realtors. Sales decreased 1.0% from November, with the Midwest and South experiencing declines, the West seeing an increase, and the Northeast remaining unchanged. On an annual basis, existing-home sales dropped 6.2%, totaling 4.09 million units. Despite this, the median home price reached a record high of $389,800 in 2023. NAR Chief Economist Lawrence Yun anticipates a turnaround in the new year, attributing the recent low sales to higher mortgage rates, which have since decreased. Housing inventory slightly increased from a year ago, but the supply remains tight, impacting market dynamics. Yun emphasizes the need for sustained home construction to address rising prices and promote broader homeownership opportunities. The report also notes a rise in cash transactions, an increase in the time homes spend on the market, and a decrease in first-time buyers. Mortgage rates are highlighted, with the 30-year fixed-rate mortgage averaging 6.60% as of January 18. The article concludes with a regional breakdown of existing-home sales and median prices across the Northeast, Midwest, South, and West regions.
Mortgage Rates Boost New Construction Sales
In December 2023, the U.S. experienced an 8.0% increase in sales of newly built, single-family homes, reaching a seasonally adjusted annual rate of 664,000, as reported by the U.S. Department of Housing and Urban Development and the U.S. Census Bureau. This growth is 4.4% higher than the same period the previous year. The entire year of 2023 saw a total of 668,000 new home sales, reflecting a 4.2% increase from 2022. The solid performance in December is attributed to a combination of factors, including a shortage of existing inventory in the resale market and declining interest rates, according to Alicia Huey, chairman of the National Association of Home Builders. While new home sales ended the year positively due to falling interest rates and a decline in existing home sales, challenges such as a shortage of buildable lots, a lack of skilled labor, and excessive regulations are expected to persist for builders. The median new home sale price in December was $413,200, showing a 3.0% decrease from November and a 13.8% drop from a year ago.
Pending Home Sale Increase
Pending home sales increased by 8.3% in December, signaling a strong start for the housing market in 2024, according to the National Association of Realtors (NAR). The NAR's pending home sales index, which tracks housing market activity based on signed contracts for single-family homes, condos, and co-ops, rose from 71.4 in the previous month to 77.3 in December. The surge was driven by robust buying activity in the Midwest, South, and West, while the Northeast experienced a decline compared to the previous year. NAR Chief Economist Lawrence Yun attributes the positive trend to falling mortgage rates and stable home prices, offering relief to homebuyers. The housing market, which slowed over the past two years due to rising interest rates, is expected to receive a boost in 2024 if mortgage rates continue to decline. The Federal Reserve's potential rate cuts are anticipated to contribute to this positive momentum. Despite mortgage rates still being higher than their 2021 lows, the recent downward drift is seen as a positive factor for homebuyers. Yun also expects rent prices to stabilize further in the coming year, influenced by recent growth in apartment construction, which is likely to slow inflation.
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