In this installment of The Full Measure with Kevin Hecht, uncover February 2024 housing market insights, plus advice for residential appraisers.
As we navigate through the early months of 2024, the U.S. housing market presents a landscape of contrasts and evolving dynamics. From the subtle upturn in existing home sales to the moderated growth of new home sales and the looming shadow of rising mortgage rates, the market’s complexion is changing.
This article delves into the latest trends, offering insights into how inventory levels, pricing, and economic indicators shape the future for buyers, sellers, and industry professionals. With a keen eye on affordability challenges and homebuilders’ sentiment, we unravel the complexities of today’s housing market, providing a forward-looking analysis of what these shifts mean for the real estate landscape.
February 2024 housing market insights
Existing homes sales
Total existing-home sales rose 3.1% month-over-month in January to a seasonally adjusted annual rate of 4 million. However, sales still slipped 1.7% from January 2022, when the annualized rate stood at 4.07 million homes sold.
NAR’s chief economist, Lawrence Yun, attributed January’s gain to more inventory and buyers capitalizing on lower mortgage rates versus late 2022. Rates remain much higher than a year ago, which continues to limit affordability.
On the supply front, total housing inventory grew 2% month-over-month and 3.1% annually to 1.01 million homes for sale at January’s end. This represents 3 months’ supply at the current sales pace, still tight by historical standards but improved from recent ultralow levels under 2 months.
Asking prices also keep notching new highs as demand outpaces supply. January’s median existing-home price hit $379,100 nationwide, a 5.1% increase from last January. Multiple offers remain common for mid-priced homes in the hottest metro areas.
Homes sold swiftly in January despite seasonally slower winter conditions. Properties stayed on the market for a median of 36 days, up from 29 days in December but similar to January 2022’s 33 days. This speed continues fueling bidding wars.
For real estate professionals, January’s mixed data confirms that housing has passed its pinnacle but remains underpinned by positive fundamentals compared to past downturns. Staying abreast of the interplay between these dynamics at the local level is key to forecasting where an area’s housing market heads next.
Moderating new home sales growth
Sales of newly built single-family homes rose just 1.5% month-over-month in January, following a downwardly revised 7.2% jump in December. This marked a notable slowdown likely tied to rising mortgage rates, now hovering above 6% on average versus 3% a year ago.
New home prices also reflected easing conditions, with January’s median price falling 2.6% from last year, the fifth consecutive monthly decline. However, the pace of price drops moderated relative to steeper 10% annual slides in prior months.
On supply, months of inventory at the current sales pace ticked slightly higher to 8.3. While still below the historical equilibrium of 5-6 months, this represents a welcome improvement from the severely depleted levels witnessed over the past two years.
Mortgage rates projected to rise further
The average 30-year fixed mortgage rate has spiked by over 300 basis points in the past year to the highest levels since 2002, topping 6.5% recently. Added increases could occur in the coming months.
Stronger-than-expected inflation and jobs reports caused investors to scale back expectations for near-term Fed policy easing. Economists now look for the first rate cut to come in June rather than March, driving the 10-year Treasury yield to 4.2% by year-end.
This outlook implies that 30-year mortgage rates will climb further to around 6.8% – exacerbating affordability headwinds for the housing market, especially for prospective first-time home buyers.
Homebuilder sentiment consistent with slowing activity
Builder sentiment improved for the third straight month in February as expectations grew for moderating mortgage rates over 2023. The National Association of Home Builders (NAHB) said its housing market index climbed 4 points to 48 last month—its highest since August 2022.
The uptick reflects cautious optimism that the Fed could begin cutting interest rates in the second half of 2024. Lower rates would ease affordability pressures and support home buyer demand. Notably, the share of builders cutting prices moderated in February as traffic trended higher.
“With future expectations of Fed rate cuts in the latter half of 2024, NAHB is forecasting that single-family starts will rise about 5% this year,” said NAHB Chief Economist Robert Dietz. “But as builders break ground on more homes, lot availability is expected to be a growing concern, along with persistent labor shortages.”
The bottom line for housing
While rates pose affordability headwinds, solid economic conditions should prevent more ominous housing declines. Home price appreciation will likely slow down to low single digits rather than turn negative in most areas.
Nonetheless, downside risks have grown, requiring close monitoring of metrics like supply/demand balances, mortgage rates, construction trends, and consumer savings rates to inform investment decisions.
While rapid home price growth is slowing, forecasts point to stabilization rather than sharp price declines in most areas.
Advice for residential real estate appraisers
Appraisers should expect smaller monthly and annual appreciation rates. However, with low unemployment and wages rising steadily, conditions do not indicate that across-the-board correction is imminent.
The largest headwind remains affordability, as higher mortgage rates limit buying power. Appraisers using income valuation approaches must factor in these impacts, disproportionately affecting first-time home buyers. Adjustments to price-to-income ratios and qualifying income metrics may be warranted.
In summary, appraisers must strike a balance in today’s housing market. While higher rates pose challenges, low unemployment, rising wages, and moderating home price growth provide stability. Appraisals require sound judgment on where a local market sits within these crosscurrents.
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