The 2024 Mid-year Mortgage Outlook

The 2024 Mid-year Mortgage Outlook

As we embark on the second half of 2024, potential homebuyers continue to face strong headwinds. Home prices are still on the rise; interest rates remain elevated; housing inventory is stubbornly low; and inflation continues to put a strain on household budgets. None of that sounds very promising, but there are signs that the winds may be shifting for those eager to enter the market.

While we don’t have a crystal ball, this article discusses the factors we believe could impact housing prospects through the end of this year.

Steadying or Decreasing Interest Rates

In March of 2022, the Fed began raising interest rates to stem red-hot inflation that peaked at 9.1% in June of that year. Since then, inflation has gradually moderated, coming in flat on the June 12 CPI report. Given slowing inflation and the fact that the last rate hike took place in July 2023, we continue to believe the threat of further rate hikes is likely behind us.

While inflation numbers have been consistently cooling off, mortgage rates have been a bit more sporadic. So far in 2024, national average mortgage rates for a 30-year fixed mortgage have fluctuated between approximately 6.6% and 7.22%, peaking in May. 

When will mortgage rates start going down for good? It’s hard to say for sure, but many economists agree they could fall back to the mid-6% range by the end of the year. This is good news when it comes to affordability. Lower interest rates mean a lower monthly payment and less strain on a homebuyer’s budget, but will the inventory be there?

Increasing Home Inventory

More than nine of every 10 of U.S. homeowners with a mortgage have an interest rate below 6%. With current interest rates remaining well above that mark, there has been little motivation for many homeowners to sell only to turn around and finance their next home at a higher rate. This is part of the reason existing home inventory has remained relatively low. The other is new building permits and housing starts have also trended lower in recent years. The most current reports from the US Census Bureau show that new building permits and housing starts have declined new building permits and housing starts have declined slightly compared to this time last year – down 2% and .6% respectively.

On the bright side, there are recent indications that the higher interest rates aren’t keeping all potential sellers out of the market. In May 2024, there were 35.2% more homes actively for sale and 6.2% more homes newly listed over the same time last year.

However, those persistent interest rates could be keeping more buyers out of the market as homes are no longer selling as quickly as they did a year or two ago. The total number of unsold homes currently listed increased by 20.9% compared to the same time last year.

If interest rates begin to drop in the latter half of the year as anticipated, we could see more homes listed for sale AND more buyers for whom the interest threshold is low enough to make purchasing attractive. One caveat is the end of the year coincides with the holiday season when sellers may be hesitant to list their homes. Therefore, we may not see a meaningful uptick on either side until early 2025.

Increasing Home Prices

In April 2024, average home prices were up 5.3% year-over-year which is still well above the 3-5% average annual increase. Experts expect prices to continue increasing at an elevated rate through the end of 2024 and then tapering to 3.4% by April 2025.

The increase in home prices could be stifled in the latter half of 2024 if housing inventory increases and/or if interest rates begin to significantly decline. This would put more homes on the market and create more competition, which could force sellers to lower their asking price.

While home prices, interest rates, housing inventory, and inflation aren’t at ideal levels yet, things appear to be pointing in a more favorable direction. Regardless, if you have questions about lending options, start with FNBO mortgage and get prequalified before you begin your homebuying search.