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The housing market could be thawing heading into 2024 after more than a year of depressed activity.
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Sales, inventory, and construction appear to be on the rise on mortgage rates pull back.
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A housing recovery could come on slowly as conditions improve, according to Redfin’s chief economist.
The US housing market is seeing a positive shift in sales, inventory, and construction – all possible signs the ice age in the residential real estate market could finally be nearing its end.
Pending home sales ticked higher 1% on a monthly basis in October, according to Redfin data, reaching the highest seasonally adjusted level seen in a year. Meanwhile, mortgage applications jumped 6% on a monthly basis and soared 40% from levels last year, according to the Mortgage Bankers Association.
The rise in mortgage applications and sales activity, in part, is due to more inventory coming on the market. New listings of homes for sale rose 3% year-over-year the week ending November 10, a separate Redfin report said, the largest increase in about two years.
Builders also appear to be revving up their pace of construction, though total home building still remains below 2022 levels. Housing starts rose a seasonally adjusted 1.3 million in October, rising 1.9% on a monthly basis, according to the Census’ Monthly New Residential Construction report.
Meanwhile, housing completions came in at a seasonally adjusted 1.4 million. That’s a slower pace than completions recorded in September, but represents a 4.6% increase from October last year, the report added.
The 2023 housing deep-freeze
Those are all positive signs for the housing market, which has been at a standstill for much of the past year as sky-high mortgage rates have sidelined both buyers and sellers. The shortage in both demand and supply led existing home sales to plummet to their lowest level in 13 years in September, according to the National Association of Realtors, around the same time the 30-year fixed mortgage rate was hovering around 8%.
But rates have eased substantially since their highs mid-October, thanks to the pullback in bond yields as well as cooling inflation, which could give the Fed reason to stop hiking interest rates. The average rate on the 30-year fixed mortgage hovered around 7.44% last week, according to Freddie Mac, down from 8% in October.
Experts say a more significant pullback in mortgage rates — somewhere in the neighborhood of 5% — could fuel a strong housing rebound, a period where sales will pick up as buyers and sellers dip back into the market.
But according to Redfin chief economist Daryl Fairweather, that recovery could come in the form of a slow crawl rather than a sudden shift.
“It’s not going to be a major turn of events. We may just see a few more people decide now it is the time to make a move and lock in a rate,” Fairweather said in a recent interview with Yahoo Finance, pointing to still-high mortgage rates and depressed sales overall. “I think it’s going to be a slow recovery.”
Other experts, though, have warned more trouble could be on the horizon, especially as the US economy begins to decelerate. Even if the US manages to avoid a recession next year, the housing market could struggle for a “long time,” Fannie Mae previously warned, as the Fed is likely to keep interest rates high to keep inflation in check.
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