WASHINGTON BUSINESS JOURNAL: This year’s spring housing market is expected to have more inventory and less volatile mortgage rates than last year — but it won’t be without its challenges.
It’s likely that buyers will actually face intense competitionas the for-sale housing market enters its prime buying and selling season, said Orphe Divounguy, senior economist at Zillow Group Inc. (Nasdaq: ZG).
New listings are up about 20% year over year, according toZillow, but homes aren’t staying on the market long. Homes were on the market an average of 17 days in February, Zillow research shows. That’s 10 days shorter than pre-pandemic norms.
“Despite the increase in new listings, you’re seeing homes are selling really fast, so inventory isn’t growing that much,”Divounguy said. “Things are moving really, really fast, especially for homes priced to sell and [that] are in great shape.”
During the four-week period ending Feb. 25, listings of U.S.homes for sale rose 13% year over year, the biggest increase in nearly three years, according to Redfin Corp. (Nasdaq: RDFN). While active listings in that timeframe were flat from the same period a year ago, it was the first time in nine months the total number of for-sale homes didn’t decline.
Still, the 2024 spring housing market isn’t likely to resemblethe frenzied market of 2021 and early 2022, before mortgage rates began their rapid ascent. While competition for homes is expected to be more fierce than last year, affordability remains a major barrier for homebuyers, and home prices aren’t going down.
Zillow recently found that buyers need to make more than$106,000 to comfortably afford a home, an 80% increase from $59,000 in 2020. That’s primarily because a monthly mortgage payment on a typical U.S. home is up 96% from early 2020, to $2,188, assuming a 10% down payment.
In January, about one in five homes on the market nationally had to cut its asking price, Divounguy said.
“Long gone are the 2021 days — there are affordabilitychallenges,” he said.
Daryl Fairweather, chief economist at Redfin, said the recentuptick in new listings is a “welcome improvement” from last year, but there remains a lot of demand for homes, and more inventory will mean more buyers in the market. And even with the recent improvement in listings, there’s still a lack of inventory nationwide.
The new-construction market continues to chug ahead, with housing starts at a seasonally adjusted annual rate of 1.3 million in January, according to U.S. Census data. But thoseare typically more-expensive homes, Fairweather said.
As the spring season progresses, even more listings are expected to come onto the market, but those new listings may come with more demand.
“If you’re selling a home to buy again, that doesn’t really help with the overall level of competition, because it’s also creating a new buyer,” Fairweather said. “Even with the new listings coming on the market, demand will match supply in a way where prices will continue to remain steady or even rise.”
Mortgage-rate movement continues to be a closely watched lever of the overall market.
The Federal Reserve is widely anticipated to make its firstinterest-rate cut later this spring, although much still hinges on the U.S. labor market and Consumer Price Index.
If the Fed does cut rates, Fairweather said mortgage ratesshould fall, which would make housing more affordable and bring more buyers back to the market.
“Competition would heat up and prices will go up,” she said,adding if affordability improves this summer, it could make people feel more positive about the economy overall.
Divounguy said the market is still expecting at least three rate cuts this year, and those reductions have largely been baked into the mortgage-rate declines seen since rates peaked in October.
“If the labor market is too strong, if wage growth comes in way hotter than expected, if CPI comes in hotter than expected, you’re likely going to see mortgage rates increase again,” Divounguy said.
If, however, the economy continues to move closer to the Fed’s stated 2% inflation target, mortgage rates may ease — but only slightly. It’s most likely mortgage rates will remain around where they are now, Divounguy said.
“I tell people don’t expect a big drop in mortgage rates,” hesaid. “[That] would only come from a massive decline in economic activity.”
