Kiplinger Housing Outlook for the Spring Home-selling Season

The spring home-selling season is arriving. It looks like another tough year for buyers lies ahead with tight inventories and elevated mortgage rates.

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Housing outlook for the spring home-selling season

The spring home-selling season is arriving. It looks to be another tough year for buyers, due to tight inventories and elevated mortgage rates. 

Mortgage rates figure to ease slightly in 2024 after peaking at a multi-decade high of 7.8% on average for a 30-year fixed-rate mortgage. This year, mortgage rates should be closer to 7%, and may dip to about 6%, but no lower. That will give borrowers a bit more buying power, and nudge a few owners who have been thinking of moving to list their houses. Still, rates won’t fall enough to boost the supply of existing homes for sale by much. 

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Homeowners who locked in low rates during the pandemic years are reluctant to give up those cheap mortgages. The average rate on existing mortgages now is just 4%. Inventories will continue to run superlean. They’ve been averaging about three months of supply at the current sales pace, less than half of normal. So, competition will stay fierce for homes that do come on the market. 

Prospective buyers will have to act fast if they see something they like. 

House prices are up 4% this year, after 5.5% in 2023. Some housing analysts expect slight price dips. We think the market is too tight for that. More and more buyers are being priced out of the market. The payment on a median-priced home ate up 40% of the median household’s income last year which is the worst affordability reading since the 1980s. 

The homeownership rate is declining, largely because first-time buyers — typically, people under 35 — aren’t able to buy. Modestly lower mortgage rates won’t do much to help as prices continue to rise. 

A tight market is hard on buyers, but it’s good for builders. They’ll be busy this year, putting up as many houses as they can. Whatever they build is sure to sell. Since hitting bottom in January 2023, permits for single-family homes are up 36%. Buyers who can’t find anything in the used market will increasingly turn to new construction. Big builders generally have the room to offer sales incentives, via either price breaks or help buying down the rate on a customer’s mortgage to ensure plenty of buyers. In contrast with the single-family market, multifamily faces excess supply, thanks to the recent surge in apartment construction. Multifamily building permits and starts have been declining since the end of 2022, but even so, many new units will be hitting the market as builders focus on finishing developments in progress. That could eventually create better buying opportunities for folks open to condos instead of single-family homes while giving renters more bargaining power. 

Unless demand picks up, the next couple of years could see vacancy rates rise, hurting property values. Landlords and commercial real estate investors take note.

Housing summary: December and January

Home price growth accelerated again in December but at a slower pace.  The S&P CoreLogic Case-Shiller National Home Price Index, which measures the prices of existing homes across the nation, rose 5.5% from a year earlier, up from a 5% gain the previous month. On a month-over-month, seasonally adjusted basis, home prices rose 0.2% — the 11th consecutive increase. The monthly increase was the same as in the previous month, but much lower than the 0.6% and 0.5% gains in September and October. Looking ahead, the inventory of existing homes will stay tight, which will push home prices higher as demand partially recovers from last year on the back of modestly lower borrowing costs.

Residential construction plummeted at the start of 2024. Total housing starts fell 14.8%, to 1.33 million annualized units in January — the largest monthly drop since April 2020. Single-family starts fell 4.7%, while multifamily starts declined 35.6% during the month. Single-family permits rose 1.6% from the previous month, while multifamily permits fell 7.9%. The modest gain in single-family permits over the past few months and the recent jump in builder confidence suggest that single-family construction will continue to gradually increase in the coming months. Builders are expecting a steady stream of buyers from the existing home market, where inventory is much tighter.  

Meanwhile, multifamily developers look to be hitting the brakes amid more restrictive credit conditions and softer apartment-market demand. Apartment vacancy rates have turned higher over the past year as demand has continued to normalize and the supply of new multifamily developments has continued to increase. Multifamily developers are likely to focus this year on completing units under construction rather than breaking ground on new developments. 

New home sales ended the year on a high note. They rose 1.5% in January to a seasonally adjusted annual rate of 661,000 units. Sales rose in the Northeast, the Midwest and the West, and fell in the South. A recent recovery in home-buyer sentiment and mortgage applications for new-home purchases have contributed to rising optimism among home builders about the spring selling season. The median price of a new home rose 1.8% in January from the previous month, but it’s still down on an annual basis. The glut of new homes should weigh on price growth, even as builders are pulling back on offering buyer incentives and price cuts, according to a recent survey conducted by the National Association of Home Builders. The low inventory of existing homes means that demand for newly built homes will stay robust in 2024. 

Existing home sales rose in January, due in part to lower mortgage rates. Sales of previously owned homes rose 3.1%, to 4 million annualized units in January. That increase was the largest monthly gain since February 2023. The rise largely reflects the fall in mortgage rates across November and December, which brought more buyers and sellers into the market. Relatively low sales levels show that affordability concerns continue to weigh on demand for existing homes. The fact that existing 30-year fixed-rate mortgages average just 4% shows that most homeowners locked in a rate much lower than what’s available on new loans now. Meanwhile, the inventory of existing homes on the market fell 11.5% from a year ago. This translates to three months of supply at the current sales pace, down from 3.1 months in December. Inventory will increase slightly over the next few months as falling mortgage rates entice more homeowners to put their homes on the market. But even so, it’s going to remain a seller’s market. 

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Rodrigo Sermeño
, The Kiplinger Letter

Rodrigo Sermeño covers the financial services, housing, small business, and cryptocurrency industries for The Kiplinger Letter. Before joining Kiplinger in 2014, he worked for several think tanks and non-profit organizations in Washington, D.C., including the New America Foundation, the Streit Council, and the Arca Foundation. Rodrigo graduated from George Mason University with a bachelor's degree in international affairs. He also holds a master's in public policy from George Mason University's Schar School of Policy and Government.