Many economic indicators have been pointing in a positive direction ever since the calendar turned to 2024. Data about inflation, employment and interest rates have suggested that the U.S. economy is recovering from the shock that the global pandemic caused the entire system. But now that we’re entering the spring homebuying season, will this hopeful news translate into an improved housing market?
The last year has seen a cooling off of homebuying activity, as low mortgage rate and few homes for sale discouraged buyers. If we see things warm up in the coming months, it could lead to a lot more activity. Read on to find out the trends we’re keeping an eye on, or prepare for the spring thaw by getting pre-approved for a mortgage and stay ahead of your competition.
Rates warming or cooling?
The first question that everyone asks when it comes to the prospect of buying a home is about the current mortgage rates. And this makes sense, as they’ve been on quite a wild ride over the last few years. Seeing how a slight difference in mortgage rates could add hundreds of dollars to your monthly mortgage payments, it’s important to know what’s going on with rates.
The good news is that mortgage rates started a downward trend at the end of 2023 that continued into 2024. The bad news is that the trend changed around the time of the January 31st meeting of the Federal Reserve Open Market Committee, the official body that sets the federal funds rate that most banks set their guidelines by.
The Fed, in an effort to get control of inflation, decided to leave their rate the same in January, and hinted that they could do the same at their next meeting in March. Markets had been hoping for a rate cut, but the Fed’s stance seems to make this unlikely for now. While the Fed’s rates aren’t directly tied to mortgages, this news helped push mortgage rates higher at the beginning of February.
However, the prevailing view of economists is that the Fed will likely cut their rates eventually this year, and that mortgage rates will come down along with those cuts. It’s impossible to know when that will happen, which is why it’s so important to work with a local loan officer who not only knows what is happening with rates, but also when it is a good time to take advantage of rates versus waiting them out.
Bottom line: You’ve probably heard this before, but a smart way to deal with rates right now is to remember this saying: Date the rate, marry the house. Even if mortgage rates seem too high now, a temporary buydown like our Rate Reduce program could put homeownership in reach. And if and when mortgage rates do come down, you could refinance into a lower rate.
Enough homes for every buyer
Usually, the next question for potential homebuyers, particularly first-time homebuyers, after asking about mortgage rates, is home prices. But before we get to that, let’s take a look at what housing economists call inventory. Inventory refers to the number of homes for sale at any one time.
There has been a lack of homes to satisfy demand for years now, going back before the pandemic—if you can even remember a time before the pandemic. This can make the homebuying journey frustrating, as the competition for the few homes that are for sale can lead to bidding wars, rising home prices and broken hearts to the losing bidders.
The solution to a housing inventory crunch is more homes being built and homeowners putting their homes up for sale. And there’s good news on both fronts.
New construction
According to Kiplinger, there has been a trend of increasing permits for single-family home construction over the last few months. That, coupled with increases in builder confidence, suggest that more and more homes will be built over the coming months.
While this won’t be enough new construction to satisfy demand, we are seeing more of the homes being bought are newly constructed homes. Expect that trend to continue.
Inventory improves
Lowering mortgage rates could encourage some homeowners to sell, as their current mortgage rate is not such a golden handcuff as it would be when rates are higher. Realtor.com recently reported a 7.9% increase in the number of homes for sale on a typical day, which is a marked improvement. During similar time frames in previous years, there was a double-digit percentage decrease in the number of homes for sale.
Bottom line: The number of homes for sale in your area may tell a different story than the national trend. That’s why it’s so important to work with a local expert and be ready to move quickly if you find something you like. Ask your loan officer about what programs we have, like Same Day Mortgage and PowerBid Approval, to help give your offer some extra impact.
More homes for sale could help lower the demand as there would be fewer bidding wars and each home could spend more time on the market. These should help keep home prices in check, which leads us to…
How home prices are doing
Housing affordability is a term that you’ll sometimes hear on the news or from an economist, and it basically refers to how much it costs to afford a home. Two main elements go into this calculation: mortgage rates and home prices. When either go up, it becomes harder to afford a home. When they both go up, it gets really hard.
We went over the factors affecting mortgage rates this spring, but when looking at home prices, we see that they’ve been going up for a few years now. Low mortgage rates in 2021 and 2022 definitely led to a surge in homebuying, which pushed home prices up. This was exacerbated by a lack of houses going up for sale during this time, pushing demand up. Prices went higher accordingly.
Home prices have gone up in 2023. This table shows just how much they have, and it also shows how prices tend to go up as the mercury rises, with the popular homebuying months in the spring and summer seeing a seasonal rise in the median existing-home price.
Month | Median existing-home price | Month-over-month | Year-over-year |
December 2022 | $366,900 | Down 1.0% | Up 2.3% |
January 2023 | $359,000 | Down 2.2% | Up 1.3% |
$363,000 | Up 1.1% | Down 0.2% | |
$375,700 | Up 3.5% | Down 0.9% | |
$388,800 | Up 3.5% | Down 1.7% | |
$396,100 | Up 1.9% | Down 3.1% | |
$410,200 | Up 3.6% | Down 0.9% | |
$406,700 | Down 0.9% | Up 1.9% | |
$407,100 | Up 0.1% | Up 3.9% | |
$394,300 | Down 3.1% | Up 2.8% | |
$391,800 | Down 0.6% | Up 3.4% | |
$387,600 | Down 1.1% | Up 4.0% | |
$382,600 | Down 1.3% | Up 4.4% |
Thanks to more homes being built, and more homeowners willing to put their homes on the market because of the forecasted lowering of rates this year, many economists are predicting a slowdown of home price appreciation. Lawrence Yun, senior economist at the National Association of Realtors®, is looking for home prices to go up only 1.4% this year.
However, as you can see in the chart above, it’s normal for home prices to go up in the spring and peak in the summer. Look for the start of the home price appreciation over the next few months. Perhaps median home prices won’t go up much from their levels from a year ago, but they will likely follow that seasonal trend.
Bottom line: Home prices are unlikely to come down this spring, so it’s best to make a plan for paying for your home. Not only can you find loan options that can help you with your mortgage rate, but we also offer programs that can help you afford the down payment of the home. Many people, particularly first-time homebuyers, wrongly believe that you need to pay 20% of the purchase price upfront. Not true!
Find out about all of the down payment assistance programs that can help put purchasing a home in reach.
It all depends on mortgage rates
When mortgage rates went down in December and January, home sales started to go up. But will that continue if rates go above 7%, like they did in the beginning of February? That may cool homebuyers’ desire to buy a home.
However, rates also affect inventory. As Mike Simonsen, president of real estate data firm Altos Research, points out: “Higher rates equals higher inventory. Lower rates equals lower inventory.”
The centrality that rates will play during this spring underscores how important it is to work with an expert local lender, one who will help you make sense of the economic trends and make the best homebuying decision for yourself.
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