US Housing Slump Deepens: Impact on Home Shoppers and Sellers

The US housing market faces challenges as spring disappoints, leaving homebuyers and sellers uncertain. Will mortgage rates ease by year-end?

The US housing market continues to struggle to break free from its three-year downturn, with the spring season proving to be disappointing and a bleak outlook for the summer and fall ahead. Despite initial optimism at the start of 2024 that mortgage rates would decrease further following a late 2023 decline, hopes were dashed as stronger-than-expected data on inflation and the economy clouded the possibility of a rate cut by the Federal Reserve. By April, the average rate on a 30-year home loan surpassed 7% for the first time since November, coupled with record-high home prices, leading many potential homebuyers to put their search on hold indefinitely. Economists predict a modest easing of mortgage rates by the end of the year, but this may not be sufficient to entice buyers or convince homeowners to sell.

The spring homebuying season, typically a busy period with over one-third of annual home sales occurring between March and June, has been lackluster in recent years. Sales of previously owned U.S. homes declined in the March-June period in both 2022 and 2023, with this year showing a similar trend. Affordability challenges, such as high mortgage rates, low housing inventory, and soaring prices, have deterred many potential buyers.

The average rate on a 30-year mortgage currently stands at 6.95%, more than double the rate from early July 2021. Mortgage rates are influenced by various factors, including the Fed's interest rate policy and movements in the 10-year Treasury yield. While the 10-year yield has been decreasing recently, following signs of slower economic growth, economists project that the average rate on a 30-year home loan will remain above 6%. Additionally, the historically low inventory of homes for sale continues to pose a challenge for buyers, despite a slight increase in listings.

The national median sales price of previously owned homes reached an all-time high of $419,300 in May, up 5.8% from a year earlier. Although price growth is slowing, with forecasts indicating a further slowdown in the coming months, affordability remains a concern for many buyers. Some experts fear that a slight decrease in mortgage rates without a corresponding increase in housing inventory could lead sellers to raise prices, further burdening buyers.

For those who can afford to buy now, the current real estate market offers a wider selection of homes to choose from. Cash buyers may also find opportunities in the near term. However, careful consideration of market conditions and personal financial circumstances is advised before making a purchase decision.

The US housing market faces ongoing challenges, with high mortgage rates, low inventory, and soaring prices impacting both buyers and sellers. While some improvements are expected in the second half of the year, uncertainties remain. Homebuyers and sellers should stay informed and seek professional advice to navigate the evolving market conditions.