Status of the National housing market
Boston Condos for Sale and Apartments for Rent
Status of the National housing market
Economists anticipate slower rate cuts in 2025
Trump policies may stall inflation and interest rate reductions, experts warn
Many figures in real estate were relieved this year when the Federal Reserve started bringing down interest rates. Next year may not bring much of the same.
Should the Fed enact a quarter-rate cut next week at its meeting, that would represent a full percentage point reduction in the last three months.
The Fed conducted its first cut since 2020 in September under pressure to bring down rates as its 2 percent target for inflation approached.
Since then, however, a number of factors might deter the Fed from more quick and decisive moves on fiscal policy. Economists don’t expect the first rate cut of 2025 until March, followed by ones in June and September, according to Bloomberg’s survey.
Inflation hasn’t moved significantly in months, emerging as one of the most important economic indicators for economists. Higher interest rates are geared towards bringing down inflation, which is why the Fed first started drastic rate hikes a couple of years ago.
Donald Trump’s impact will also likely be monumental, even if it remains to be seen how. When Trump takes office in January, he will likely move on policy proposals from the campaign trail, including mass deportations, more tariffs and tax cuts.
Economists say those policies could be a hindrance to reducing inflation, which would make the case for further interest rate cuts harder to swallow.
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Status of the National housing market
For the first time in 11 years, home prices dropped year-over-year in February as mortgage rates more than doubled following the Fed’s consecutive interest rate hikes, curbing affordability.
However, the median price of a home increased month-over-month for the second consecutive month in March. The median home price is projected to increase for a third month in a row in April to $393,300, which is 2% lower than the previous April’s median price of $401,700, according to data released in May by the National Association of Realtors (NAR).
One big factor behind the strengthening home prices and the decrease in sales volume — down 23% in April from a year ago — is the lack of housing inventory.
“Home sales are bouncing back and forth but remain above recent cyclical lows,” says NAR Chief Economist Lawrence Yun. “The combination of job gains, limited inventory and fluctuating mortgage rates over the last several months have created an environment of push-pull housing demand.”
Where are home prices headed?
Generally speaking, high mortgage rates should prompt house prices to trend downward.
“Yet, housing supply remains so restricted, that any uptick in demand will put upward pressure on prices,” wrote First American Chief economist Mark Fleming in a blogpost. “This is the dynamic that played out in March, as the spring home-buying season ushered in more demand for homes, while insufficient supply prompted buyers to compete and bid up prices.”
No return to typical seasonality in the market
There will be a lot of uncertainty in the economy over the next few months and prospective home buyers are going to be more opportunistic, as opposed to following traditional seasonal market trends, says Bright MLS Chief Economist, Lisa Sturtevant.
“There will continue to be volatility in mortgage rates as we wait to see what the Fed will do at its upcoming meetings and as we watch economic data roll in over the summer,” says Sturtevant. “Prospective buyers are going to be watching rates closely, and many will try to make an offer on a home when they see rates dip. As a result, we should expect less seasonality this year than we had prior to the pandemic.”
More sellers returning to the market
While inventory will remain low this year, we should expect to see more sellers who had been on the sidelines list their home for sale this summer and into the fall, says Sturtevant.
Many existing homeowners have been “locked in” with super low mortgage rates, which has discouraged discretionary moves.
“However, some people have to move, and others will decide to move for a bigger or smaller home, or to change jobs or neighborhoods, despite rates remaining elevated,” says Sturtevant.
The uptick in new home construction has provided more opportunities for move-up buyers who may have been staying in place because they did not have anywhere to move to.
“One thing that could shut down new listings is if we see a sharp spike in mortgage rates to 8 or 9%, a situation that is still unlikely but not out of the realm of possibilities,” she says.
New home construction
Instability of regional banks is a concern for builder and land developer financing going forward, says Robert Dietz, chief economist for the National Association of Home Builders.
Lending conditions for builders have tightened, and the interest rate for development and construction loans is now well above 10%, which threatens housing supply.
Single-family spec home building loans had an effective rate of 13% in the first quarter of 2023 compared to 9% in the first quarter of 2018.
“Our expectation is that the rate of these loans will move lower as the Fed cuts the federal funds rate, but our forecast is that will not happen until later in 2024,” Dietz told USA TODAY. “As a result, land development would be suppressed, and we risk loaning low on lots during a home building rebound in 2024. Lot development can take three years in a typical market.”
Source: USA Today
