QUICK MARKET
ANALYSIS

November 11, 2024 – With the election and the latest Fed’s rate cut announcement behind us, housing market activity will hopefully pick up in the next few weeks before the year ends. Mortgage rates have already begun trending down after peaking last week, which is a good start for the holiday season. Housing sentiment reaching its highest level since early 2022 is also a positive sign that signals an increase in homebuying interest, which could result in more home sales in coming months. NAR also believes that the housing market will likely get better in the near term, as it released its latest housing market outlook that projects a solid growth in home sales in both 2025 and 2026.
 
Federal Reserve cuts rate by a quarter of a percent as expected: The Federal Reserve cut the fed funds rate by 25 basis points (bps) in its November FOMC meeting and reiterated that the central bank will continue to reduce its balance sheet. The Fed’s policy statement sounds more hawkish than their September’s release, as the labor market continues to cool but remains solid, and inflation is moving towards the Fed’s 2-percent goal. With the economy showing resiliency and the odds of having a fiscal stimulus within the next two years being higher now than before the election, the Fed may slow down their rate-cutting pace in 2025. In the near term, however, it is likely that the central bank will reduce the fed funds rate by another 25 bps in their December meeting. Since the Fed’s announcement, mortgage rates have come down from their recent peak reached last week, but the decline in the past few days was due mostly to the calming down of the financial market post-election rather than the latest rate cut.
 
Housing sentiment reaches its highest level since early 2022: Home Purchase Sentiment released by Fannie Mae increased 0.7 points in October and climbed to the highest level since February 2022, as consumer gained confidence on housing despite rising rates. The share who said that it is a good time to buy inched up by 1 point to 20% in October, even as the average 30-year fixed rate climbed back to a near 4-month high in early November. Consumers feeling better about the job market and remaining hopeful that mortgage rates will come down next year are likely the contributing factors for the housing optimism. The share of survey respondents who expected rates to decline over the next 12 months dipped last month but continued to register at 39%, after reaching a record high of 42% in September. The increase in the overall housing sentiment is a positive sign for the market and is an indicator that many potential homebuyers are not giving up their dream of homeownership. 

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Housing affordability improves as rates decline: Housing affordability in California improved in the third quarter. The statewide index for existing single-family homes climbed 2 points on a quarter-to-quarter basis to 16% and inched up by 1 percentage point from 12 months ago. Slower price growth and more favorable interest rates pushed California’s affordability back up from the 17-year low recorded in the second quarter. The monthly mortgage payment for a median-priced home recorded in the third quarter bounced back from an all-time high set in the prior quarter, declining 6.8% from Q2 and dipped 0.2% from the same quarter a year ago. Mortgage rates, however, have climbed back above 7% in recent weeks and reached their highest levels since early July. While home prices should moderate in the next couple of months due to seasonality, recent spikes in rates will likely keep housing affordability near or below the current level in the upcoming quarter.    

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NAR forecasts solid sales growth in 2025 and 2026: With the worst housing supply condition coming to an end and mortgage rates stabilizing, home sales in the U.S. will increase solidly in the next two years, according to the latest National Association of REALTORS®’s (NAR) housing market outlook. Lawrence Yun, the Chief Economist of NAR, expected mortgage rates to drop back down to 6% eventually and predicted that there will be four rounds of rate cuts in 2025. Rates, however, may not decline much further as the U.S. budget deficit remains elevated and could crowd out mortgage money if the government continues to borrow more in the next few years. Lower rates and a solid labor market should propel housing demand to higher levels in the coming years, and Yun projected a 9.3% increase in existing home sales for 2025 and a 13% jump for 2026. The median price is expected to climb 1.8% and 2.3% respectively in 2025 and 2026. New home sales are projected to increase 11% in 2025 and another 8% the year after, according to the forecast.
     
Construction spending ticks up in September: U.S. construction spending up for the second consecutive month in September as both residential and nonresidential activity picked up after mortgage rates slid further at the end of the summer. The total outlays rose 0.1% month-over-month and increased 4.6% year-over-year. The edge-up in spending was due largely to an increase in private residential expenditure, especially in new single-family as the outlay for the subcategory rose 0.4% from August. It was the first month-over-month gain in six months. New private multifamily outlays, on the other hand, dipped 0.1% from the prior month and recorded their 10th monthly drop in September. A large influx of multifamily housing supply in the first nine months of the year is to blame, but the momentum could be shifting as apartment demand appears to be firming up in recent months.