As we move through 2024, the housing market has had its share of struggles—think high mortgage rates, stubborn home prices, and slow sales. But there might be a silver lining on the horizon.

The current midyear forecast suggests that we could see some relief soon, with potential lower mortgage rates over the next six months.

For the week ending August 8, 2024, the average rate for a 30-year fixed mortgage dropped to 6.47%, according to Freddie Mac. That’s the lowest it’s been in over a year. Realtor.com® economists are hopeful it could go even lower, possibly hitting 6.3% by the end of the year.

Danielle Hale, Chief Economist at Realtor.com®, points out that the Federal Reserve might start cutting its federal funds rate later this year. If that happens, it could lead to lower mortgage rates, giving buyers and sellers some much-needed breathing room.

Here’s what we can expect in the coming months:

Mortgage Rates Might Drop

The Federal Reserve has been keeping borrowing rates high to tackle inflation but has hinted at potential rate cuts. With July’s job report showing rising unemployment, it looks like the Fed’s policies are making an impact. This makes a rate cut more likely.

While mortgage rates don’t move in perfect sync with Fed rates, they generally follow similar trends. So, if the Fed lowers its rates, we can expect mortgage rates to drop too. Hale expects the Fed might start lowering rates in September, with cuts likely to be more significant than initially thought for 2024.

Home Prices Still Stubborn

Even with high mortgage rates, home prices have kept climbing. Hale notes that despite more inventory and longer times on the market, prices haven’t dropped. The forecast suggests a 4.6% increase in home prices by year’s end, with June setting a new record for median existing-home sales prices.

The ‘Lock-In’ Effect Is Easing

There’s been an unexpected increase in homes for sale, with a 14.5% rise projected for the year. This bump is due to buyers stepping back and sellers listing their homes as rates dropped earlier this year.

Though the ‘lock-in’ effect, where sellers are hesitant to move because of low mortgage rates on their current homes, is still a factor, it’s expected to ease over time. However, inventory is still below pre-pandemic levels, with only a few major markets returning to or exceeding these levels.

Home Sales Will Lag

The busy spring homebuying season was hit hard by high mortgage rates, leading to a drop in existing-home sales to 3.89 million in June, the lowest in six months. But as rates go down, more homes should hit the market.

The forecast predicts a modest increase in home sales for 2024, reaching 4.1 million. That would still be among the lowest annual totals since 2012. As rates continue to drop, we should see sales pick up and return to a more normal pace.

Rental Market Stability

The rental market has held steady in 2024, unaffected by mortgage rate fluctuations. Hale explains that the balance between new rental supply and steady demand has kept the rental market stable.

Rents vary by location, with some cities like Austin and Las Vegas seeing rents over 10% below recent peaks. San Francisco is the only major metro where rents have returned to 2019 levels.

Impact of the Presidential Election on Housing Policy

With housing affordability at the forefront, there’s speculation about how the upcoming presidential election might affect housing policy. Both candidates, Kamala Harris and Donald Trump, have promised to improve housing affordability.

Hale notes that while their approaches differ—Harris focusing on affordable housing and Trump on deregulation—they’re likely to push for increasing housing supply. However, she doesn’t expect the election to cause major changes in the housing market in 2024. Tax policy debates in 2025 could, however, bring some future volatility.

National Association of Realtors® Settlement

The National Association of Realtors® settlement, effective August 17, 2024, might shake up real estate commissions and home prices. Currently, sellers often pay commissions for both their agent and the buyer’s agent, which can drive up home prices.

With potential changes in who pays buyer’s agents after the settlement, home prices might adjust. This could add some unpredictability to home prices through the end of 2024 and into 2025.

 

For more details, check out the original article on Realtor.com® here.