December 19, 2024
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Existing home sales rose 4.8% in November to 4,150 thousand after increasing 3.4% in October That is the fastest pace of home sales since March. The steady increase in jobs is boosting income, mortgage rates should fall somewhat in the months ahead, and prices should be about stable. As a result we expect home sales to pick up somewhat during 2025.
Lawrence Yun, NAR chief economist said that, “Home sales momentum is building. More buyers have entered the market as the economy continues to add jobs, housing inventory grows compared to a year ago, and consumers get used to a new normal of mortgage rates between 6% and 7%.”
Mortgage rates are currently 6.8%. The combination of a lower rate of inflation and further Fed easing in the months ahead should allow mortgage rates to retreat to perhaps 5.8% by the end of next year.
The average home sat on the market for 32 days in November which is up from 29 days in October. While it has been creeping upwards in recent months, 32 days is still a relatively short time period. A decade ago homes would routinely sit on the market for 3 months or so. Even prior to the pandemic homes were on the market for roughly 45 days. That is no longer the case. Despite the extraordinarily slow pace of sales, properly priced homes continue to sell fairly quickly.
For a long time there were very few homes available for sale. However, that seems to be changing. Inventory fell 0.3 month in November to 3.7 months which is short of the 5.0 month supply that is required to balance the demand for and supply of homes. The actual number of homes available has been steadily rising in recent months and has increased 17.7% in the past year. Eventually it will get back to the desired 5.0 month supply which is the point at where demand is roughly in line with supply, but it is unlikely to reach that mark until perhaps the end of next year.
.The shortage of homes available for sale is preventing a sharp drop in home prices. Home prices fell 0.2% in November to $406,000 after having been unchanged in October and having declined in July, August, and September. The year-over-year change is now 4.7% but prices have fallen 4.6% in the past five months.
Housing affordability is currently at 102.3 which means that potential home buyers have 2.3% more income than required to purchase a median-priced home. Many first time home buyers have been priced out of the market. But if mortgage rates decline further, job gains boost consumer income, and home prices are fairly steady, housing affordability should climb and the median-income earning family will have about 15% more income than required to purchase a median-priced home by the end of 2025.
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Given all of the above we expect existing home sales to rise about 9.0% in 2025.
We expect GDP to rise 2.5% growth in the fourth quarter and 2.9% in 2025.
Stephen Slifer
NumberNomics
Charleston, S.C.
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