The housing market in December 2024 is showing mixed trends due to lingering inflation pressures, rising mortgage rates, and a tight inventory of homes. Here’s a closer look at the key dynamics shaping the market:
1. Mortgage Rates and Affordability
- Rising Mortgage Rates: Mortgage rates are hovering just above 6%, but signs indicate they could fall slightly in 2025. A forecast by Freddie Mac suggests a decrease to around 5.7% by the second half of 2025. Despite the expectation of lower rates in the future, current rates continue to affect buyer demand, particularly for first-time homebuyers【22】【23】.
- Affordability Crisis: The housing affordability index is at historically low levels. For example, the typical household is spending a significantly higher proportion of their income on housing compared to pre-pandemic levels. Many buyers are finding themselves priced out of the market, leading to a slowdown in transaction volumes. As home prices remain high, combined with the high cost of financing, affordability remains a key hurdle【24】.
2. Home Prices and Inventory
- Steady Price Growth: Despite a slight cooling in price growth compared to 2023, home prices have continued to rise in 2024. As of October, home prices are up by around 5% year-over-year, with the median sale price standing at $434,720【23】.
- Inventory Shortage: Inventory levels remain critically low. The National Association of Realtors (NAR) reports a shortage of 4.5 million homes nationwide. Though inventory is seeing minor month-to-month increases, there is still a substantial gap between supply and demand. This scarcity of homes has driven up competition for the available properties【22】.
3. Economic Factors Impacting the Market
- Inflation and Fed’s Policies: The Federal Reserve’s actions to control inflation have stabilized some economic sectors, but high mortgage rates and consumer prices continue to challenge housing demand. The overall inflation rate has slowed to 2.6% in 2024, which should help buyers and sellers plan for the coming year. However, the housing market’s lagging effects from these inflation measures are still felt【24】.
- Wage Growth and Employment: While wages have been rising, they have not kept pace with the pace of home price increases. This mismatch further exacerbates affordability issues, especially for younger and first-time homebuyers【23】.
4. Regional Variations
- Regional Market Differences: Different regions are experiencing varied trends. Some areas like the Sun Belt (including parts of Texas and Florida) continue to see significant demand, which is keeping prices high. Conversely, markets in the Northeast and parts of the West Coast, such as San Francisco, are experiencing more price stability or even slight declines【22】【24】.
5. Predictions for 2025
- Home Prices: While home prices may cool down slightly in 2025, experts expect them to remain elevated due to the ongoing inventory shortage and high demand in specific markets.
- Mortgage Rates: As mentioned earlier, mortgage rates are expected to fall slowly, which may rejuvenate some buyer demand. However, it’s likely that the market will still remain relatively slow compared to pre-pandemic conditions, particularly for buyers needing to secure financing【23】【24】.
Conclusion
The housing market in December 2024 presents a challenging environment for both buyers and sellers. High mortgage rates and limited inventory are creating significant barriers, though modest improvements are expected in the coming year. While there may be some relief from mortgage rates and price growth in 2025, buyers are still grappling with affordability issues.
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