Written by David Dodge

According to writer Tim Smart, the real estate landscape has been tough to navigate in recent years, especially with rising home prices and skyrocketing mortgage rates during the pandemic. However, as we move into the final quarter of 2024, there’s cautious optimism that relief could be on the horizon. Lower mortgage rates and an increase in available homes have raised hopes for a potential market rebound, but is it enough to solve the ongoing affordability crisis?

Changes in Mortgage Rates

In 2023, mortgage rates surged to nearly 8%, pricing out many would-be buyers. But this year, rates have begun to ease, with 30-year fixed mortgage rates now hovering around 6%. This drop has brought some relief to the market, making homes slightly more affordable than last year. But while the reduction is encouraging, it’s still far from the pre-pandemic lows that many buyers are hoping for.

The Federal Reserve's recent decision to cut interest rates by half a percentage point has further fueled optimism. Economists predict that rates could continue to drop into 2025, making homeownership more attainable for first-time buyers. According to Odeta Kushi, deputy chief economist at First American, "Further rate cuts in the coming years could ease affordability constraints and reduce the rate lock-in effect for existing homeowners."

A Glimmer of Hope in Inventory

One of the key challenges of the current market is the lack of homes for sale. Many homeowners with low-interest-rate mortgages are reluctant to sell, leaving potential buyers with fewer options. However, recent data from the National Association of Realtors (NAR) shows a promising increase in the number of homes on the market. Inventory levels have risen by 34% from a year ago, marking the highest availability since April 2020.

While these figures suggest that more homeowners are willing to sell, the overall sales volume is still far below pre-pandemic levels. Housing turnover in 2024 has hit a historic low, with only 2.5% of U.S. homes changing hands, according to Redfin. Despite this, there are signs that the market may start to pick up as more sellers test the waters in what’s typically a slower season for real estate.

Affordability: Still a Major Roadblock

Even with lower mortgage rates and more homes for sale, affordability remains a significant issue. The gap between income levels and housing costs has narrowed slightly, but prices are still high, especially in certain regions. A September report from Realtor.com found that while the median home listing price dropped by 1% year-over-year, the price per square foot increased by 2.3%, reflecting continued price pressures.

Additionally, the effects of the "rate lock-in" phenomenon are still being felt, where homeowners with ultra-low mortgage rates are hesitant to sell and take on new, higher-rate mortgages. This has kept inventory lower than needed, making it difficult for prospective buyers to find homes that fit their budgets.

Looking Ahead

The final quarter of 2024 could offer a busy period for the housing market if mortgage rates continue to decline and more homes become available. Experts like Lisa Sturtevant, chief economist at Bright MLS, believe that this combination of factors could lead to a late-year surge in activity. However, it’s unlikely that the market will return to its pre-pandemic pace anytime soon. Affordability issues and the lingering effects of high mortgage rates are likely to keep many buyers on the sidelines for the foreseeable future.

While there are signs of improvement, the housing market remains highly localized, with different areas experiencing varying levels of activity. For example, turnover rates in cities like Phoenix are still down by 43% compared to 2019, while states like California have seen even lower activity at just 1.5%.

In conclusion, while there are reasons to be optimistic about the housing market’s future, the road to recovery will likely be gradual. Lower mortgage rates and a boost in inventory are steps in the right direction, but affordability challenges and hesitant sellers will continue to shape the market as we move into 2025.

Resources:

• Will Fall Bring Relief to the Housing Market?
• Home Prices
• Federal Reserve
• The Fed is Cutting Interest Rates - What to Know
• Just 2.5% of U.S. Homes Changed Hands This Year