The housing market has seen a tough year so far in 2024, with high housing prices and rising loan rates making it difficult for home buyers. According to economists at Freddie Mac, mortgage rates are expected to remain elevated through most of the year, prompting prospective buyers to readjust their housing expectations. Despite this, housing demand is anticipated to remain high due to favorable demographics, especially in the starter home segment. Rates on a 30-year fixed mortgage are currently hovering above 7%, close to their highest point in over 20 years, and the Federal Reserve is expected to delay cutting its benchmark rate, with only one cut predicted toward the end of the year.
The Federal Reserve has expressed a preference for keeping rates high until inflation cools to about 2% on an annual basis, rather than cutting too early and risking another round of price spikes. This has led to higher loan costs for borrowers, including credit cards and mortgages. In addition to high mortgage rates, tight inventory and rising home prices are making homebuying challenging for many Americans, particularly middle- or low-income individuals. The median U.S. home sale price has hit a record $383,725, making it necessary to have a six-figure income to afford the typical home in the country, according to Zillow.
The cost of homeownership has become increasingly steep, with home prices not falling in any of the nation’s largest metro areas in April. Higher mortgage rates have also affected current homeowners who purchased or refinanced their properties when rates were below 3% in the early years of the pandemic. Some are hesitant to sell their properties if it means taking on a new mortgage at today’s rates, contributing to a national shortage in both existing and new homes for sale. The combination of tight inventory and higher mortgage rates continues to be a barrier to home sale volumes, with rates above 7% pricing out many prospective homebuyers.
The challenges in the housing market have created a difficult environment for both buyers and sellers, with rising mortgage rates and high home prices impacting affordability. The Federal Reserve’s approach to keeping rates high until inflation cools has led to higher loan costs for borrowers, while tight inventory and rising prices have made it challenging for buyers to enter the market. The combination of these factors has created a national shortage in both existing and new homes for sale, with buyers and sellers facing hurdles in the current housing market. Despite these challenges, economists predict that housing demand will remain high, driven by favorable demographics and the need for starter homes.
