U.S. Housing Market Update: Existing-Home Sales Decline and Trends for 2024
The U.S. real estate market continues to evolve through 2024, driven by fluctuating sales, changing inventory levels, and shifting interest rates. One of the most significant updates from the National Association of Realtors (NAR) is that existing-home sales dropped to 3.86 million seasonally adjusted annual rates (SAAR) in August 2024, marking a 2.5% decrease from the previous month. This decrease is felt across three of the four major U.S. regions, with the South, West, and Northeast reporting declines, while the Midwest remained stable. This article will dive into the causes behind the dip, key data, and the implications for buyers, sellers, and investors in the coming months.
Key Housing Market Data: August 2024
- Existing Home Sales: 3.86 million SAAR, a 2.5% decrease month-over-month, and a 4.2% decrease year-over-year.
- Inventory: 1.35 million homes available for sale, a slight increase from 1.34 million in July.
- Months of Supply: 4.2 months, indicating a balanced market approaching buyer-favorable conditions.
- YoY Inventory Change: Inventory is up 22.7% from August 2023.
Regional Breakdown
- Northeast: Sales remained stable with a 0% month-over-month change but saw a 2.4% YoY decrease.
- Midwest: No month-over-month change, but an 11.4% YoY decrease.
- South: A 6.5% decrease in sales, reflecting an 11.5% YoY decrease.
- West: The region reported the steepest YoY decline at 6.0%, with a 3.8% monthly drop in sales.
What’s Driving the Decline in Home Sales?
Several economic and market-specific factors have contributed to the current downturn in existing-home sales:
1. Interest Rates at a 20-Year High
Mortgage interest rates have been a primary driver of this market slowdown. As of August 2024, rates hovered above 7%, the highest they’ve been in two decades. These rates have made homeownership more expensive, leading many buyers to either hold off on purchasing a home or struggle with affordability. Higher interest rates also impact existing homeowners with low-rate mortgages, who may be reluctant to sell and re-enter the market at today’s elevated rates.
2. Inflation and Economic Uncertainty
With inflation concerns persisting into 2024, the broader U.S. economy has seen rising costs across several sectors. The Federal Reserve’s interest rate hikes aimed at controlling inflation have trickled down to the mortgage market. Coupled with fluctuating job markets, consumer confidence in making large purchases, such as homes, has diminished. The result? Buyers are hesitant to make long-term commitments, and many are taking a “wait-and-see” approach.
3. Inventory Shortages
While inventory levels are up 22.7% YoY, they are still far below pre-pandemic levels. The months-of-supply — which measures how long it would take to sell all homes currently on the market if no new listings were added — has risen to 4.2 months, compared to 4.0 months in August 2019. However, this number is still below the 6-month threshold typically seen in a balanced market.
Homeowners are reluctant to sell, given their fixed-rate mortgages that are significantly lower than today’s mortgage rates. Additionally, new construction has not kept pace with demand due to rising material costs, labor shortages, and regulatory constraints. This lack of inventory has helped to support home prices, despite declining sales.
4. Buyer Hesitation Amidst Political and Economic Uncertainty
The upcoming U.S. presidential election in 2024 has introduced a degree of uncertainty into the market. Historically, election years bring hesitation as buyers wait to see how policies will shift and affect their finances. Additionally, fluctuating mortgage rates and the threat of further interest rate hikes from the Federal Reserve have caused potential buyers to delay their purchasing decisions, hoping for better financial conditions.
Real Estate Forecast for 2024: What’s Next?
Inventory Trends: Will It Continue to Rise?
Inventory in August 2024 increased to 1.35 million, compared to 1.34 million in July. This slight increase suggests a market gradually becoming more balanced, offering more opportunities for buyers. However, inventory is still below historical norms, and to reach 5 months-of-supply, sales would need to remain depressed while new listings increase. The upcoming winter months, with their traditionally slower sales cycles, may offer a clearer picture of how much inventory can rise before the next seasonal peak.
Mortgage Rates and Affordability: A Turning Point?
Mortgage rates have been a critical factor in slowing home sales. Mortgage rates above 7% have deterred many buyers, especially first-time homeowners, from entering the market. However, the NAR’s economists suggest that as inflation stabilizes and the Federal Reserve eases its aggressive rate hikes, there may be some relief in sight. If mortgage rates fall, expect buyer activity to pick up again, likely increasing home sales in early to mid-2025.
Home Prices: Stabilizing or Dropping?
While home prices in the U.S. have not seen a sharp decline due to low inventory levels, the increase in months-of-supply may exert downward pressure on prices in certain regions, particularly in areas that experienced the most rapid price appreciation during the pandemic. With demand softening, home prices may stabilize or see minor declines as we head into 2025. However, it’s unlikely we’ll see a market-wide price crash.
The Rental Market: Demand Continues to Soar
As homeownership becomes less attainable for many Americans due to high mortgage rates and steep home prices, the rental market is continuing to thrive. The median rent across the U.S. increased to $2,495 in August 2024, with cities like Tampa, Atlanta, and Denver seeing consistent year-over-year growth. Investors are capitalizing on this trend by purchasing homes to convert into rental properties, further limiting the number of homes available for sale.
Key Takeaways for Buyers, Sellers, and Investors
For Buyers:
- Be patient. With inventory slowly rising and months-of-supply increasing, buyers may find more favorable conditions in the months ahead.
- Consider mortgage rates carefully. While interest rates are high now, if rates decline, there may be more buying opportunities.
For Sellers:
- Price competitively. With rising months-of-supply, sellers will need to be realistic about their pricing strategies to avoid extended time on the market.
For Investors:
- Rental properties are still a solid investment. With homeownership out of reach for many, the demand for rental units is expected to remain high.
The Crystal Ball and the U.S. Housing Market Outlook
The U.S. housing market in 2024 is marked by slowing sales, rising inventory, and fluctuating interest rates. While existing-home sales have declined, inventory is starting to inch upwards, offering hope for more balanced conditions. Buyers may benefit from increasing months-of-supply, and sellers must adjust their expectations to accommodate a more competitive market. As mortgage rates and economic conditions shift, it will be crucial for all market participants to stay informed and adapt their strategies accordingly.
- Existing Home Sales Decline: In August 2024, existing home sales dropped to 3.86 million SAAR, reflecting a 2.5% decrease month-over-month and a 4.2% decrease year-over-year.
- Inventory Growth: Inventory levels rose to 1.35 million homes in August, slightly up from 1.34 million in July, representing a 22.7% increase from August 2023.
- Months of Supply: The months-of-supply rose to 4.2 months, indicating a more balanced market but still below the 6-month threshold for a neutral market.
| Metric | August 2024 Value | Monthly Change | YoY Change |
|---|---|---|---|
| Existing Home Sales | 3.86 million SAAR | -2.5% | -4.2% |
| Inventory Levels | 1.35 million homes | +0.7% | +22.7% |
| Months of Supply | 4.2 months | +0.1 months | +0.2 months |
Regional Breakdown:
- Northeast: 0% monthly change but a 2.4% YoY decrease in sales.
- Midwest: No monthly change but 11.4% YoY decrease.
- South: Sales dropped 6.5%, with an 11.5% YoY decline.
- West: 3.8% monthly drop in sales and a 6.0% YoY decline.
| Region | Monthly Change (%) | YoY Change (%) |
|---|---|---|
| Northeast | 0% | -2.4% |
| Midwest | 0% | -11.4% |
| South | -6.5% | -11.5% |
| West | -3.8% | -6.0% |
Factors Driving Decline:
- High Interest Rates: Mortgage rates above 7% have deterred buyers, making homeownership less affordable.
- Economic Uncertainty: Persistent inflation and fluctuating job markets have reduced consumer confidence.
- Inventory Shortages: Although inventory is up YoY, it remains below pre-pandemic levels, supporting home prices.
Forecasts:
- Inventory: Expected to increase slightly but remain below historical norms.
- Mortgage Rates: If inflation stabilizes, mortgage rates could drop, boosting buyer activity by early to mid-2025.
- Home Prices: Prices may stabilize or see slight declines, especially in high-appreciation areas from the pandemic.
Rental Market:
- Median Rent: Increased to $2,495 in August, with cities like Tampa and Denver seeing strong growth.
- Investors: Continue purchasing homes for rental purposes due to high rental demand, reducing homes available for sale.
Recommendations:
- For Buyers: Be patient, monitor mortgage rates, and consider timing carefully.
- For Sellers: Price competitively as the market balances.
- For Investors: Rental properties remain a strong investment due to ongoing high demand for rental units.
FAQs
- Why are home sales declining in 2024?
- Home sales are down due to rising mortgage rates, inventory shortages, and economic uncertainty.
- Is now a good time to buy a home?
- Buyers may find more options as inventory increases, but mortgage rates remain high, so it’s essential to weigh both factors carefully.
- What’s happening with home prices?
- Home prices have stabilized, but some areas may see slight declines as the market balances out.
- Will mortgage rates drop soon?
- Experts anticipate that mortgage rates may decline as inflation stabilizes, possibly making homeownership more affordable in 2025.
Michael Clark
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