As we move through the latter half of 2024, the real estate market continues to evolve, presenting both challenges and opportunities for appraisers. This month’s update examines key trends in home sales, construction, prices, and broader economic factors that impact our industry.
Home sales overview
The U.S. housing market continues to face challenges, with total home sales, including both existing and new homes, experiencing declines. According to Freddie Mac, total home sales for June 2024 came in at 4.5 million, the lowest level since July 2011.
This downturn is reflective of a broader trend where high mortgage rates and affordability concerns have kept many potential buyers on the sidelines.
Existing home sales
Existing home sales have shown slight improvement, with a 1.3% increase in July 2024, ending a four-month decline. Despite this uptick, sales are still sluggish, and affordability remains a significant challenge for many buyers.
The median existing-home price rose 4.2% year-over-year to $422,600, marking the thirteenth consecutive month of price gains (NAR). However, regional variations persist, with sales increasing in the Northeast and West but declining in the Midwest and South.
New home sales
New home sales saw a robust 10.6% increase in July 2024, driven by lower mortgage rates and ample new-home inventory. This growth was particularly strong in the West and Midwest, where sales jumped by 33.8% and 9.9%, respectively (Realtor.com).
However, despite the increase in sales, new home inventory remains low, with a significant portion of homes still under construction, limiting the availability of move-in-ready options.
Housing starts
The housing market’s supply side has also been under pressure, with new residential construction activity declining in July 2024. Housing starts fell 6.8% from June and were down 16.0% year-over-year. Multi-family projects led the decline, while single-family starts showed a slight increase.
This reduction in new construction could exacerbate the existing inventory shortage, further influencing home prices and market dynamics.
Home price growth
Home prices have continued to rise, although the rate of growth has slowed. According to the S&P CoreLogic Case-Shiller Index, home prices increased by 5.4% in June 2024, a deceleration from the previous month.
Regionally, price growth varied, with the strongest gains seen in major East Coast markets like New York, while some Western markets, such as Portland, experienced more modest increases.
Employment
The labor market has shown signs of cooling, with the unemployment rate rising to 4.3% in July 2024, the highest level since November 2021. Job growth has slowed, particularly in sectors like transportation and warehousing, which could have implications for consumer spending and, consequently, the housing market.
Despite these challenges, wage growth remains above pre-pandemic levels, which may support housing demand in some markets.
Inflation
Inflation continues to moderate, with the Consumer Price Index (CPI) rising just 2.9% year-over-year in July 2024, the lowest level since March 2021. The Federal Reserve’s efforts to curb inflation appear to be taking effect, with expectations of further rate cuts on the horizon.
This easing of inflationary pressures could lead to lower mortgage rates, providing some relief to homebuyers and potentially boosting housing demand.
Mortgage rate trends
Mortgage rates have been on a downward trend, with the 30-year fixed-rate mortgage averaging 6.35% as of late August 2024, the lowest level in 16 months (Realtor.com). This decline is largely attributed to the anticipated rate cuts by the Federal Reserve, which are expected to further reduce borrowing costs in the coming months. However, while lower rates are encouraging, many buyers are still waiting for more significant reductions before re-entering the market.
The Federal Reserve’s focus
As the Federal Reserve navigates the delicate balance between controlling inflation and sustaining economic growth, its actions remain a critical focus for the housing market. The Fed is closely monitoring several key indicators, including:
- inflation,
- employment rates, and
- overall economic growth
The recent moderation in inflation and a cooling labor market suggest that the Fed may soon begin implementing rate cuts to stimulate economic activity.
Most economists are predicting that the Federal Reserve will initiate a series of rate cuts starting as early as September 2024, with potential additional cuts in November and December. These anticipated rate cuts are already influencing financial markets, including mortgage rates, which have started to decline in anticipation of lower borrowing costs.
For real estate appraisers, understanding the Fed’s actions and the economic indicators they monitor is essential for accurately forecasting market conditions and advising clients.
Summary and focus for real estate appraisers
As the real estate market navigates through these challenging times, real estate appraisers must stay informed about the latest trends in home sales, prices, and economic indicators. The fluctuations in the market underscore the importance of thorough and up-to-date appraisals.
Appraisers should focus on understanding regional market dynamics, the impact of employment trends on housing demand, and the potential influence of mortgage rate movements on buyer behavior. Additionally, it is crucial to keep a close watch on the Federal Reserve’s actions, as their decisions on interest rates will significantly influence the broader economic environment and the housing market.
By staying ahead of these trends, appraisers can provide valuable insights that help their clients make informed decisions in a volatile market.
Stay up to date with all the latest trends and regulatory changes with McKissock’s appraisal continuing education courses. We also offer the benefit of our expertise in the field through our regular podcast episodes. Grow your appraisal career with McKissock today!
