In 2023, the housing market was stifled by the “mortgage rate lock in effect.” Due to sub-5% mortgage interest rates, 85% of current mortgage holders were unwilling to sell their homes and buy another at higher interest rates that peaked at 7.79% the week ending Oct. 26. The situation led to a decrease in inventory levels and home sales. There is hope for improvement in 2024 as mortgage rates have been decreasing steadily for the past seven weeks, with the average rate being 6.61% for a 30-year fixed mortgage in the week ending Dec. 28.
After five consecutive monthly declines, existing-home sales grew by 0.8% from October to November. Lawrence Yun, Chief Economist at National Association of Realtors, states that with plunging mortgage rates, a significant turn can be expected. However, the sales decreased by 7.3% year-over-year, down from 4.12 million in November 2022. Yun’s expectation is to be taken with a grain of salt as experts predict that despite an improvement in the mortgage rates, there will still be a shortage of homes for sale.
Danielle Hale, Chief Economist for Realtor.com, says that households will have more buying options in 2024 due to the small uptick in single-family home construction and the completion of multi-family units under construction. However, the majority of the latter will turn into rental homes. This increase in inventory will curb the increase in home and rental prices. A long-running shortage will keep prices from falling too low.
Builders have slowed production due to rapidly rising mortgage rates that have hit record lows, affecting affordability.
Odeta Kushi, Deputy Chief Economist at First American, explains that the affordability crisis has forced builders to respond by easing on production. The situation has led to a scarcity of affordable housing and has negatively impacted home sales.
The mortgage rate lock in effect had a significant impact on the 2023 housing market. 2024 is expected to be different as mortgage rates have steadily decreased. However, a shortage of homes for sale will continue to be a major issue. The increase in inventory resulting from the completion of multi-family units under construction and single-family home construction will curb the increase in home and rental prices. Nevertheless, rapidly rising mortgage rates have affected affordability, and builders have slowed production as a result, aggravating the already dwindling supply of affordable housing.
