Wall Street analysts had hoped that the housing market would show signs of life in 2024. Instead, it remained stagnant.
The reason is largely related to the bumpy path of mortgage rates this year alongside low supply and record high house prices. In January, the average 30-year fixed mortgage rate was hovering around 6.6%, according to Freddie Mac.
Now, despite ups and downs, the rate is hovering around the same level. It was 6.72% in the week to Wednesday, compared with 6.6% a week earlier, according to Freddie Mac data.
As the cost of borrowing has not become cheaper, it has not triggered any significant movement in buying and selling activity. In fact, sales of previously owned homes are on pace to set the record for the worst year since 1995 for the second year in a row.
“I thought this year we would see the housing market freeze start to thaw, and see more activity,” Jeff Tucker, chief economist at Windermere Real Estate, told Yahoo Finance in an interview. “He didn't quite go out like that.”
Housing activity got off to a rocky start this year. Mortgage rates, which had been falling until the end of 2023, leveled off and then started to rise again in February, with the average 30-year rate reaching 6.77% by the middle of the month, per Freddie Mac data.
The increase in house prices further compounded the pressure of rising rates. The current median home sale price jumped 5.7% compared to February of last year, marking the eighth consecutive month of year-over-year price gains, according to the National Association of Realtors (NAR).
High house prices cost many budget conscious buyers. Home sales, a leading indicator of home sales based on contract signings, fell 7% year over year in February.
Still, there were reasons for optimism. Data from Redfin showed that new listings climbed 10% year on year in the four weeks ending February 18, the biggest increase in two months, as homeowners took advantage of the increase in house prices.
“Inventory recovered from the bottom, but remained limited in many markets, sales activity was weak, and mortgage rates were flat,” Ali Wolf, chief economist at Zonda, told Yahoo Finance.
Wall Street analysts had hoped the housing market would rebound in 2024. Instead, it remained stagnant: Sales of previously owned homes are poised to set a record for the worst year since 1995 for a second straight year consecutively. (Photo by Paul Bersebach/MediaNews Group/Orange County Register via Getty Images) ยทRegister MediaNews Group/Orange County via Getty Images via Getty Images
Despite the early stage of the buying activity, it did not lead to an increase in sales. Existing home sales sank 4.3% in March to a seasonally adjusted annual rate of 4.19 million, per NAR. Mortgage rates continued up almost 7%further contributing to the slowdown.
“Many people were surprised that house prices did not go down as mortgage rates rose. This showed us that the supply and demand imbalance was more powerful than the borrowing costs,” said Wolf.
By the summer, mortgage rates changed course and began to decline as new data shows that inflation was slowing. In June, the Fed held interest rates steady and projected a single rate cut for the year.
That still wasn't enough to push some would-be homebuyers off the sidelines, with high costs remaining a major barrier. Data from the National Association of Realtors showed existing home sales fell 5.4% from a year earlier in June, while the median sales price hit $426,900, marking a record high for the second straight month.
Expensive housing costs “threw some cold water on homebuyers who were hoping for a real turnaround in conditions,” Tucker said.
But sales did not improve because many potential buyers and sellers locked into historically low borrowing costs were playing the waiting game. Current home sales fell to the lowest level since 2010 during September, per NAR.
House hunters were hoping that mortgage rates would fall further after the Fed cut interest rates to get serious about buying. The Federal Reserve cut its benchmark rate from half a percentage point on September 18. But many economists warn that mortgage rates are unlikely to fall much further.
In fact, mortgage rates started to rise, move closer to 6.5% in October, as markets adjusted their expectations about the scope and timing of future Federal Reserve rate cuts.
“Historically, mortgage rates move in tandem with Fed rate changes,” Wolf said. “This year, however, mortgage rates actually went up after the Fed cut rates. This is because investors ultimately drive mortgage rates, and they take in other economic data and policy proposals and allocate their money accordingly.”
As 2024 draws to a close, the rate path looks uncertain. At its policy meeting in December, the Fed said two projected rate cuts for next year, down from a previous forecast of four. Investors remain concerned about sticky inflation data and the potential impact of the incoming Trump administration's policies on price increases.
Analysts have said they believe there will be housing activity rise in 2025 as more homes hit the market with buyers and sellers adjusting to the reality of today's higher interest rates.
In one encouraging sign, existing home sales for November were up 6.1% from a year ago, the biggest year-over-year gain since June 2021, according to NAR.
“We think it will continue to be a slow climb,” Danielle Hale, chief economist at Realtor.com, told Yahoo Finance's Claire Boston.
Dani Romero is a reporter for Yahoo Finance. Follow her on X @daniromerotv.
