April 18, 2024
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Existing home sales declined 4.3% in March to 4,190 thousand after having jumped 9.5% in February Sales had been falling for almost two years as the combination of sharply higher mortgage rates and higher home prices took their toll But with the drop in mortgage rates from 7.8% to 6.8% a couple of months ago existing home sales have rebounded somewhat.
Lawrence Yun, NAR chief economist said that, “Though rebounding from cyclical lows, home sales are stuck because interest rates have not made any major moves. There are nearly six million more jobs now compared to pre-COVID highs, which suggests more aspiring home buyers exist in the market.”
Mortgage rates rose from 3.1% at the end of 2021 to 7.8% but have since retreated to the 7.0% mark. With the pace of economic activity remaining slow but steady and inflation continuing to slow gradually, mortgage rates have peaked and will gradually decline throughout 2024. By the end of 2024 we expect mortgage rates to be about 6.25%.
The average home sat on the market for 33 days in March which is longer than in other recent months, but there is a strong seasonal element to this series so we should expect the number of days on the market to decline sharply in the spring and summer months.
As has been the case for a long time, there are very few homes available for sale. There are simply not enough homes for sale. The market can easily absorb a doubling of inventory. Inventory rosse 0.2 month in March to 3.1 months which is well short of the 5.0 month supply that is required to balance the demand for and supply of homes. When the housing market collapsed in the 2008-09 recession this number peaked at about 11.0 months as many homeowners had adjustable rate mortgages which re-priced upwards and were unable to afford the new, substantially higher monthly payments. Foreclosures were common. The situation today is completely unlike that troubled period.
Home prices rose 2.5% in March to $393,500 after climbing 1.4% in February. In fact, home prices fell for seven consecutive months before rising somewhat in February and March. The year-over-year change is now an increase of 4.8% but, more importantly, sellers have been accepting slightly lower prices in recent months to get the deal done.
Housing affordability has dropped from where it was at the end of 2021 as home prices rose sharply and mortgage rates climbed from 3.0% to 7.8%. Housing affordability fell from a peak of 170 in the early part of last year to 91 in October This means that potential home buyers had 9.0% less income than required to purchase a median-priced home. Many first time home buyers were priced out of the market. But housing affordability has begun to turn upwards. Mortgage rates have already fallen about 1.0% from their peak and should gradually decline in 2024 as economic growth remains moderate while inflation continues to slow. The Fed should help in the second half of this year by beginning to lower the Fed funds rate. At the same time continued job gains and rising hourly wages will boost consumer income. We expect affordability to rise significantly as 2024 progresses and a median-income earning family should have 25% more income than required to purchase that median-priced home by yearend.
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Given all of the above we expect existing home sales to rise about 17.0% in 2024.
We expect GDP to rise 2.5% in both the first and second quarters of this year. followed by 2.7% growth in the second half of the year.
Stephen Slifer
NumberNomics
Charleston, S.C.
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