Tuesday, December 17, 2024

The housing market should pick up next year, but the path looks choppy

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Those who braved the housing market in 2024 faced one of the slowest sales years in three decades. Next year is shaping up to be a little bit better.

Many of the plights that kept would-be buyers and sellers sidelined this year, like 6% to 7% mortgage rates and home prices near record highs, aren’t going anywhere. But housing experts expect there to be more homes on the market next year as buyers and sellers come to terms with today’s higher-rate world.

The housing market has been effectively stuck since mortgage rates began their swift climb in 2022. Homeowners lucky enough to lock in rates around 3% in earlier years were suddenly reluctant to move if it meant taking on a new mortgage at a rate that had more than doubled.

But that “lock-in effect” may finally begin easing in earnest next year as the life events that always spur people to move — births, deaths, marriages, divorces, and job changes — continue as mortgage rates drift lower and improved inventory sparks more price competition.

Read more: Mortgage rates are heading lower — is this a good time to buy a house?

Realtor Scott Pratt, who works in Buford, Ga., north of Atlanta, said business was sluggish for much of the year, but he’s expecting to see more inventory hit his market this spring. He thinks buyers might find better deals as the year progresses, and sellers who have been on the sidelines adjust their prices to meet the current market.

“It’s going to be one more year of pain, but by the end of the year, some of these people that said they’re going to be locked in forever that want to leave…they’ll move,” he said.

Complicating the recovery is the fact that homeownership remains unaffordable for much of the country.

Median home prices are about 30% higher today than pre-pandemic, outpacing income gains made in the same period. Higher mortgage rates, rising insurance costs, and elevated property taxes add additional challenges for prospective buyers.

The ongoing affordability problems mean any uptick in transactions is still likely to be well below historical averages.

“We think it’s going to continue to be a slow climb out,” said Danielle Hale, chief economist at Realtor.com, which expects existing home sales to rise 1.5% next year to 4.07 million. That figure would be significantly below the average of 5.28 million homes sold annually between 2013 and 2019.

Surveys suggest that consumers would need mortgage rates to reach 5.5% before they step off the sidelines en masse. Few housing experts expect rates to get that low next year, especially amid uncertainty around President-elect Donald Trump’s economic policies. But mortgage rates in the 6% to 6.2% range this year were enough to spur an increase in buying and selling, and those levels remain possible next year.

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