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Freddie Mac Predicts Sluggish Housing Market in July 2024 Outlook

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The U.S. housing market is a mixed bag. There are some positive signs, but overall, caution is warranted due to ongoing economic challenges. While some signs of improvement exist, the overarching narrative remains one of caution amid significant economic challenges.

In this Freddie Mac report, we delve into the latest trends and forecasts. Let's explore the July 2024 U.S. housing market outlook: declining home sales, rising prices, and challenges ahead amid shifting mortgage rates.

U.S. Housing Market Outlook – July 2024

Steady Decline in Home Sales

Recent data from Freddie Mac reveals a concerning trend in home sales across the country. In May, total home sales—which include existing and new homes—reached 4.7 million. This figure reflects a 2.3% decline from April and a stark 4.9% decrease compared to the same period last year. This downturn in home sales marks a continuation of a troubling trend crystalized over the past few months, where both existing and new home sales have shown substantial declines.

  • Existing Home Sales:
    • In May, existing home sales were recorded at 4.11 million (seasonally adjusted annual rate).
    • Month-over-Month Change: -0.7%
    • Year-over-Year Change: -2.8%
  • New Home Sales:
    • The annualized rate for new home sales in May was 619,000.
    • This represents a significant reduction of 11.3% compared to April.

These figures illuminate a market struggling with declining sales volume, despite some improvements in inventory levels that may offer a semblance of hope for prospective buyers.

Inventory Challenges

While it’s promising to see some improvement in inventory, the overall situation remains precarious, with inventory levels still lagging behind pre-pandemic averages:

  • Existing Home Inventory: Grew by 19% year-over-year, reaching 1.28 million units. This data point is critical, as it highlights the fact that although inventory is increasing, it may not be enough to satisfy the ongoing demand.
  • New Home Inventory: This sector is seeing its highest levels since January 2008, indicating a potential shift toward stabilizing the market and giving buyers greater choices.

The market's resilience is notably reflected in these inventory stats, yet the lack of robust supply continues to hinder broader recovery efforts.

Homebuilder Confidence and Construction Trends

Diminishing Builder Confidence

The outlook for home construction appears disconcerting, as highlighted by the National Association of Home Builders. Their Housing Market Index dropped to 43 in June, down from 45 in May, indicating that builders’ confidence is teetering below the neutral threshold of 50. This shift signals a predominantly pessimistic outlook for building conditions in the coming six months.

Key Factors Influencing Confidence Decline:

  • High Mortgage Rates: The persisting high rates remain a significant deterrent for potential homebuyers, directly impacting builders' thoughts on future sales.
  • Increased Construction Costs: Costs associated with materials and labor have surged, putting additional strain on builders’ margins and discouraging aggressive development strategies.

Construction Activity Decline

The construction sector's struggles are evident, with reported declines in new residential construction:

Type of Construction Month-over-Month Change
Total Housing Starts -5.5%
Single-Family Starts -5.2%
Multifamily Starts -10.3%

The numbers suggest significant slowdowns across various categories, underscoring the broader challenges facing the housing market. Despite this reduction in new starts, it is noteworthy that the number of units under construction for multifamily housing remains resilient, with 898,000 units actively being developed. This reflects a strategic focus on multifamily units, perhaps in response to ongoing affordability issues in the single-family market.

Mortgage Rates and Home Prices

Rates Impacting Market Activity

Recent trends in mortgage rates further complicate the housing landscape. In June, the average 30-year fixed-rate mortgage was reported at 6.92%, ending the month slightly lower at 6.86%. This marginal easing in rates has prompted a revival in mortgage activity:

  • Overall Mortgage Activity: Increased by 14.5% month-over-month, signaling a growing interest in home purchasing and refinancing as rates dip below 7%.
  • Refinance Activity: Experienced a notable uptick of 25.9% when compared to the same week in May, indicating that homeowners are motivated to take advantage of the slightly lower rates.
  • Purchase Applications: Rose 8.0% month-over-month at the end of June, reflecting renewed consumer confidence to explore home purchasing options.

Home Price Trends

Despite increased activity, home prices continue to climb. The FHFA Purchase-Only Home Price Index showed a 0.2% increase month-over-month, and year-over-year house price growth remained robust at 6.3% for April. This steady appreciation in home prices, while reflecting strong demand, is a cause for concern, particularly for first-time buyers who may find affordability increasingly elusive.

Future Outlook: What Lies Ahead

Short-Term Challenges Persist

Looking forward, challenges evident in the current housing market are likely to persist. While demand for housing remains strong, several factors will play a crucial role in shaping the market’s trajectory:

  • High Mortgage Rates: These will continue to dissuade potential buyers, contributing to suppressed sales activity.
  • Escalated Home Prices: With prices on the rise, affordability will increasingly limit the buyer pool, making it difficult to stimulate sales volume.
  • Limited Inventory Options: Although inventory is slowly improving, it remains below what would be necessary to meet demand robustly, further tightening the market.

Anticipated Improvements in 2025

Despite these short-term challenges, there is cautious optimism that conditions may improve by 2025 as mortgage rates are expected to ease. As a result, we could witness a gradual recovery in home sales, driven by a more favorable borrowing environment. Our baseline scenario anticipates:

  • Increased Sales Volume: As affordability improves and buyer sentiment rebounds.
  • Upward Pressure on Home Prices: While we foresee home prices continuing to rise, the pace may moderate slightly if inventory levels can catch up to demand in several key markets.

In conclusion, while the U.S. housing market grapples with significant challenges stemming from high mortgage rates and a constrained inventory supply, there are indicators that may herald a turnaround in the years ahead. 

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Mixed Signals in US Economy: New Forecast Predicts Slower Growth

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As we navigate through the second half of 2024, a recent report paints by Freddie Mac a complex picture of the U.S. economy. The Bureau of Economic Analysis (BEA) has revealed pivotal insights regarding economic growth, labor market conditions, and inflation. Here, we delve into these developments and offer a forecast for the economy ahead.

U.S. Economic Outlook & Forecast: Current Trends and Future Projections

Recent Developments in U.S. Economic Growth

The GDP growth rate for the first quarter of 2024 has been revised upward slightly by the BEA, now standing at 1.4% annualized, compared to an earlier estimate of 1.3%. Key factors influencing this revision include:

  • Downward revisions to imports.
  • Upward revisions to nonresidential investment and government spending.

However, the trend in consumer spending has raised concerns. The final estimate indicates a slowdown, with consumer spending growth dropping from 2.0% to 1.5% for Q1 2024. Consequently, consumption's contribution to GDP also decreased from 1.3% to 0.9%.

Measure Q1 2024 Estimate
GDP Growth Rate 1.4%
Consumer Spending Growth Rate 1.5%
Contribution to GDP (Consumption) 0.9%
Real Gross Domestic Income (GDI) 1.3%

The modest rise in GDP—though the slowest growth since Q2 2022—reflects a resilient economy. The increase in Real Gross Domestic Income (GDI), which also rose by 1.3%, indicates that economic activity remains robust at a fundamental level, highlighting the complexity underlying the current economic conditions.

Labor Market Adjustments: Mixed Signals

The labor market report from the Bureau of Labor Statistics (BLS) reveals a cooling trend that raises several important considerations about employment and economic health. Here are the key statistics:

  • Total nonfarm payroll gains: 206,000 in June 2024.
  • Revised downward payroll gains for April and May by 111,000 combined, which alters the previously optimistic view of job growth.
  • Unemployment rate: has increased to 4.1%, which is significant as it reflects the highest level since November 2021.

The job openings in May were also noteworthy, with an increase to 8.1 million, indicating a still-active job market, albeit with caution. This comes even as the job openings to unemployed ratio fell to 1.22, the lowest since June 2021. Here’s a closer breakdown of the labor market trends:

  • Dominant sectors: The bulk of the job gains in June occurred in sectors such as healthcare and social assistance, as well as government roles. This signals an ongoing demand for services, despite broader economic headwinds.
  • Year-to-date job growth for 2024 now sits at 1.3 million, with an average of 222,000 jobs added each month. This reflects a decrease from the preceding month’s average of 247,000 jobs, highlighting a potential cooling in labor demand.

Inflation Trends: Signs of Moderation

On the inflation front, the core Personal Consumption Expenditure Price Index, the Federal Reserve’s preferred inflation metric, has provided some reassuring news:

  • Month-to-month increase: 0.1% in May 2024.
  • Year-over-year increase: 2.6%, marking the lowest annual rise since March 2021.

Key components of inflation to note include:

  • Goods prices: decreased by 0.4% due to drops in energy and recreational goods. This is encouraging, suggesting that consumer demand for certain products may be stabilizing.
  • Services prices: rose by 0.2%, with healthcare costs leading the increases. Despite the overall moderation in inflation, healthcare remains a significant driver of expenses for households.

Tracking inflation closely is paramount, as rising prices can prompt the Federal Reserve to adjust interest rates, further impacting consumer behavior and economic activity.

Economic Outlook: Forecast for 2024 and Beyond

Looking ahead, projections indicate that the U.S. economy will likely continue to grapple with the impacts of higher interest rates. Here’s what to expect:

  • Slower growth rates anticipated for 2024 and 2025 as the labor market weakens. Analysts suggest a sustained trend of lower growth could prevail until inflation aligns more closely with the Fed's targets.
  • Inflation control measures: Incoming inflation data suggests that a potential rate cut may occur later this year, but only if the job market cools sufficiently to control inflation. Such a move, however, hinges on multiple factors, including external economic conditions and domestic spending habits.
  • Mortgage rate implications: If the anticipated rate cut does take place, we could see a slight easing of mortgage rates in 2024. Should this occur, potential homebuyers might find an improved opportunities for homeownership, which has been gradually priced out of reach for many due to prior increases in borrowing costs.

Additional Considerations for Immigration Policies and Global Events

Beyond the domestic economic indicators, other factors deserve attention as they may significantly influence the U.S. economic forecast.

  • Immigration policies: Shifting immigration patterns could impact labor supply, particularly in industries reliant on migrant labor. A tighter labor market could exacerbate challenges in sectors like agriculture and hospitality, where demand for workers remains high.
  • Global economic conditions: Developments abroad, including potential geopolitical tensions, trade agreements, and international economic stability, will undoubtedly influence domestic economic trends. Changes in global supply chains and trade flows can affect import/export balances and subsequently impact GDP growth.

Conclusion: A Cautiously Optimistic Approach

In conclusion, while the current economic climate reflects certain challenges—especially in consumer spending and the labor market—the moderation in inflation gives some grounds for optimism. The U.S. economy demonstrates resilience, characterized by adjustments in various sectors.

As we progress through 2024, it will be essential for policymakers and consumers to remain attentive to these evolving dynamics. Understanding how growth, employment, inflation, and interest rates interact will be vital for navigating potential economic fluctuations in the near future.

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10 Hottest Housing Markets That Are Booming – May 2024

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While high interest rates have cast a shadow over much of the U.S. housing market, a select group of areas are experiencing a surge in popularity. These superstar markets are hotter than ever, attracting a record number of views per property compared to the national average, according to an analysis done by Realtor.com.

Why Are These Housing Markets So Hot?

“This intense demand is a result of a limited supply of houses for sale,” explains housing analyst Hannah Jones. “With fewer options on the market, competition heats up, driving up views and pushing home prices higher in these top spots.”

While the national average home price nudged up slightly to $442,500, many of the hottest markets boast significantly lower median home prices. In fact, 13 of the top 20 markets have median prices below the national average. These affordable havens have seen a remarkable 13.6% increase in home prices over the past year, showcasing their growing appeal.

However, this price growth hasn't deterred buyers, as homes in these hot markets are selling at a breakneck pace. In May, properties flew off the shelves three weeks faster than the national average of 44 days.

Superstar Cities of the Northeast and Midwest

The hottest markets are concentrated in just two regions: the Northeast and the Midwest. Manchester-Nashua, New Hampshire, takes the crown for the eighth time in the past year. Homes in this area receive a staggering 3.6 times more views than the national average.

While the median list price of $630,000 might seem high, it pales in comparison to nearby Boston, a pricier option at $960,000. Manchester's affordability is further enhanced by the state's lack of income and sales taxes, making it a magnet for young professionals and families priced out of pricier coastal cities.

Following closely behind is Hartford, Connecticut. Homes here typically cost $447,000 and hold immense appeal due to their proximity to New York City, just a 90-minute drive away.

This easy access to a major metropolis, combined with a lower cost of living, makes Hartford an attractive option for commuters. Springfield, Massachusetts, nabs the third spot, likely due to its combination of attractive home prices ($400,000) and low unemployment.

Finding Value in the Midwest

The Midwest offers a haven for budget-minded buyers. Three Ohio cities, Canton, Akron, and Columbus, all made the top 20. Akron boasts the lowest median price in this group at $252,000. Beyond affordability, Ohio offers a low cost of living and abundant parks and recreation, making it a great choice for families seeking a comfortable and active lifestyle.

The title for the most affordable market in the top 20 goes to Springfield, Illinois, where the average home costs just $216,000. This city also offers a central location near St. Louis, Chicago, and Indianapolis, making it a convenient hub for those who travel for work or pleasure.

A Glimmers of Hope for Urban Markets

There's positive news for those seeking homes in larger urban areas. As remote work becomes less common, some big-city markets are experiencing a resurgence in interest. Philadelphia, Kansas City, Chicago, Las Vegas, and Baltimore all saw significant jumps in their rankings.

The good news for buyers is that prices in these areas haven't skyrocketed – they climbed a modest 1.3%, slightly above the national average but still relatively affordable. This stability, coupled with an increase in available listings and a decrease in rents, suggests a more balanced housing market on the horizon, according to housing analyst Jones.

“We're starting to see an increase in affordable listings, and rents are even coming down,” she says. This suggests a more balanced housing market on the horizon, potentially offering more opportunities for first-time homebuyers.

Top 10 Hottest Housing Markets – May 2024

1. Manchester-Nashua, N.H.

Hotness Rank: 1

Leading the list is Manchester-Nashua, N.H., where the market is exceptionally competitive. Properties here receive 3.6 times more views than the U.S. average, indicating high buyer interest. The median days on market is just 14 days, showcasing the rapid pace at which homes are sold. The median listing price is at a robust $630,000.

2. Hartford-West Hartford-East Hartford, Conn.

Hotness Rank: 2

The Hartford-West Hartford-East Hartford area ranks second, with properties receiving 4.5 times more views compared to the national average. Homes here typically sell within 16 days. The median listing price in this market is $447,000.

3. Springfield, Mass.

Hotness Rank: 3

Springfield, Mass. is another hot market, where properties attract 3.3 times more views than the national average and sell in a median of 17 days. The median listing price stands at $400,000.

4. Concord, N.H.

Hotness Rank: 4

Concord, N.H. ranks fourth, matching Springfield in views per property at 3.3 times the national average and also seeing homes sell in a median of 17 days. The median listing price here is a significant $600,000.

5. Rochester, N.Y.

Hotness Rank: 5

In Rochester, N.Y., properties receive 3.2 times more views than the average U.S. property. The median days on market is 17 days, and the median listing price is more affordable at $310,000.

6. Rockford, Ill.

Hotness Rank: 6

Rockford, Ill. shows strong demand, with properties getting 3.3 times more views and selling within 21 days on average. The median listing price here is $236,000.

7. Worcester, Mass.-Conn.

Hotness Rank: 7

The Worcester, Mass.-Conn. area is ranked seventh, where properties attract 2.7 times more views than the national average and sell within 19 days. The median listing price in this region is $545,000.

8. Canton-Massillon, Ohio

Hotness Rank: 8

Canton-Massillon, Ohio has a competitive market with properties receiving 2.7 times more views and typically selling in 21 days. The median listing price is $270,000.

9. Providence-Warwick, R.I.-Mass.

Hotness Rank: 9

The Providence-Warwick, R.I.-Mass. area sees properties garnering 2.6 times more views than the national average. Homes here usually sell in 19 days, with a median listing price of $586,000.

10. Akron, Ohio

Hotness Rank: 10

Akron, Ohio rounds out the top ten, with properties attracting 3.1 times more views than the U.S. average and selling in a median of 23 days. The median listing price in Akron is $252,000.

10. New Haven-Milford, Conn.

Hotness Rank: 10

Also tied for the tenth spot is New Haven-Milford, Conn., where properties receive 3.1 times more views than the national average and sell in 24 days on average. The median listing price here is $427,000.

The hottest housing markets of May 2024 demonstrate diverse regional strengths, with the Northeast showing particularly strong demand. High views per property, quick sales, and varying median listing prices reflect the competitive nature of these markets. Whether you are a buyer, seller, or investor, understanding these trends can help you navigate the current real estate landscape more effectively.

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What is the Interest Rate Forecast for Housing in 2024?

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For potential homebuyers in 2024, understanding interest rate forecasts is crucial for budgeting and making informed decisions. Here's a breakdown of what experts predict for 30-year fixed mortgage rates this year.

Interest Rate Forecast for Housing in 2024

Current Landscape (July 2024)

As of July 2024, the housing market has seen a significant rise in interest rates compared to the historically low rates experienced in recent years. Fannie Mae and the Mortgage Bankers Association (MBA) are two of the leading authorities in mortgage rate predictions. Let's see what their current forecasts entail:

  • Fannie Mae: In their June housing forecast, Fannie Mae revised their average 30-year fixed mortgage rate for Q3 2024 to 6.8%, down from their previous projection of 7.1% (Forbes).
  • MBA: The MBA's June Mortgage Finance Forecast also predicts a decline in rates, with the 30-year fixed-rate mortgage averaging 6.8% in Q3 2024. They anticipate the average rate to fall further to 6.6% by the end of 2024.

Key takeaway: Both Fannie Mae and MBA expect a slight decrease in interest rates throughout 2024, with the average rate landing around 6.6% to 6.8%.

Factors Influencing Interest Rate Forecasts

Several factors can influence interest rate forecasts, including:

  • Federal Reserve Policy: The Federal Reserve's monetary policy decisions significantly impact interest rates. If the Fed raises interest rates to combat inflation, mortgage rates are likely to follow suit.
  • Economic Performance: A strong economy can lead to rising interest rates, while a weak economy might prompt the Fed to lower rates to stimulate growth.
  • Inflation: Inflation is a major concern for the Fed, and they may raise interest rates to control it. This, in turn, affects mortgage rates.
  • Bond Market Yields: The yield on the 10-year Treasury note is often used as a benchmark for mortgage rates. If bond yields rise, mortgage rates are likely to follow.

It's important to remember that these forecasts are just predictions, and actual rates may vary.

Potential Scenarios for the Rest of 2024

There are two main possibilities for the remainder of 2024:

  • Scenario 1: Rates Hold Steady or Decrease Slightly: If the economy weakens or inflation shows signs of cooling, the Fed may hold interest rates steady or even reduce them. This scenario would likely lead to stable or slightly lower mortgage rates for the rest of the year.
  • Scenario 2: Rates Increase Further: If inflation remains high, the Fed may be forced to raise interest rates more aggressively. This could cause mortgage rates to rise further in the coming months.

The actual scenario that unfolds will depend on various economic factors.

Tips for Homebuyers in 2024

Here are some tips for homebuyers navigating the housing market in 2024:

  • Stay informed: Keep yourself updated on economic news and interest rate forecasts.
  • Get pre-approved for a mortgage: Pre-approval gives you a better idea of how much you can afford to borrow and strengthens your offer.
  • Shop around for the best rates: Compare rates from different lenders to ensure you're getting the best deal.
  • Consider a shorter loan term: A shorter loan term, like a 15-year fixed mortgage, will typically have a lower interest rate than a 30-year loan.
  • Be prepared to adjust your budget: With higher interest rates, you may need to adjust your budget to accommodate a higher monthly mortgage payment.

How Interest Rates Affect Home Prices and Affordability

Interest rates play a significant role in both home prices and affordability. Here's a breakdown of how they impact each:

Impact on Home Prices:

  • Inverse Relationship: Generally, there's an inverse relationship between interest rates and home prices. When interest rates are low, borrowing money to buy a home becomes cheaper. This increases demand for houses, leading sellers to potentially raise prices.
  • Decreased Demand with Higher Rates: Conversely, higher interest rates make mortgages more expensive. This can reduce demand for homes, as fewer buyers can qualify for loans or afford the monthly payments at higher rates. Reduced demand can put downward pressure on home prices.

Impact on Affordability:

  • Lower Rates, Higher Affordability: Lower interest rates directly translate to lower monthly mortgage payments. This makes homes more affordable for a wider range of buyers, potentially leading to bidding wars and higher prices in a hot market.
  • Higher Rates, Lower Affordability: With higher interest rates, the monthly mortgage payment for the same loan amount increases. This can significantly reduce affordability, particularly for first-time homebuyers with limited down payments. As affordability declines, buyer demand may decrease, potentially leading to price adjustments.

Additional Factors to Consider:

  • Market Dynamics: Local market conditions like inventory levels and competition can also influence how interest rates affect prices. In a seller's market with low inventory, even rising rates might not cause significant price drops.
  • Long-Term vs. Short-Term: The impact of interest rates on prices may not be immediate. It can take time for the market to adjust to changes in rates.

Overall, interest rates are a significant factor in both home prices and affordability. Lower rates generally lead to higher demand and potentially higher prices, while higher rates can make homes less affordable and put downward pressure on prices.

Housing Market in 2024 Offers a Glimmer of Hope

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As the housing market navigates through unprecedented challenges, the spotlight is on 2024 as a potential turning point. Insights from Realtor.com® reveal a nuanced outlook, with Chief Economist Danielle Hale suggesting incremental progress rather than a seismic shift.

Will 2024 Be a Better Time to Buy a House?

The prospect of a slight dip in home prices in 2024 offers a glimmer of hope for aspiring homeowners. Projections hint at a modest decline of approximately 1.7%, providing some respite. While not a drastic drop, this adjustment could allow incomes to catch up with the relentless surge in prices witnessed over the past decade. Hale emphasizes, “A break after relentless home price increases—a leap forward for buyers' mental health.”

Despite the decline, sellers are unlikely to face a crisis, given the substantial equity accumulated during the years of soaring home values, distinguishing this situation from the Great Recession.

Mortgage Rates: Navigating Market Volatility

The housing market, akin to an intense MMA fight, has been grappling with the impact of soaring mortgage rates. Over the past three years, rates surged from the high 2% to the mid-7% range. While there is optimism for a slight improvement, Realtor.com's economic team forecasts an average rate of about 6.8% for the year, easing to around 6.5% by year's end. Despite the improvement, these rates remain significantly higher than the 4% historical average.

Hale underscores the challenge: “Rising mortgage rates have priced many homebuyers out of the market, amplifying the hurdle posed by record-high home prices.”

Housing Shortage: Challenges Ahead for Homebuyers in 2024

As we look ahead to the upcoming year, a major hurdle for prospective homebuyers looms larger than ever—the aggravating scarcity of available homes for sale. This predicament, compounded by financial constraints, is set to become an even more pressing issue, creating a conundrum for those eager to make a purchase.

The dilemma sets in as the housing market becomes marginally more affordable, yet potential buyers may still find their choices severely limited. A vicious, self-perpetuating cycle emerges: homeowners, unable to find suitable properties, opt to stay in their current residences, further diminishing the options available to other potential buyers.

Projections indicate a significant 14% drop in the number of existing homes for sale in 2024 compared to the current year. This decline, excluding new constructions, underscores the gravity of the situation.

High mortgage rates play a pivotal role in discouraging homeowners from listing their properties. With about two-thirds of homeowners having mortgage rates below 4%, and over 90% enjoying rates below 6%, the incentive to sell diminishes. The prospect of purchasing a new home at a higher rate presents a financial challenge that many are unwilling to undertake.

Moves to list homes and purchase new ones typically stem from necessity, driven by changes in family situations like welcoming a new baby, navigating a divorce, or relocating for a job or retirement, as noted by Hale.

Amidst these challenges, a glimmer of hope emerges from the construction sector. Builders are anticipated to increase construction by approximately 0.4%, resulting in just under a million new homes. Encouragingly, these numbers are not factored into the predicted housing inventory drop by Realtor.com. Builders are likely to sweeten the deal with incentives such as mortgage rate buy-downs, providing some relief to prospective buyers.

Chief Economist Danielle Hale points out, “When buyers embark on their home search, they can expect to encounter an increasing number of new homes on the market.”

Projections for Home Sales in 2024

With homeowners reluctant to list properties and buyers grappling with affordability challenges, home sales are projected to remain low. Realtor.com predicts a marginal increase of 0.1% in existing-home sales, totaling around 4.07 million homes sold in 2024. This pales in comparison to the annual sales figures of 5.28 million between 2013 and 2019, underscoring the formidable challenges faced by the market.

While uncertainties loom, the intricacies of the 2024 housing market unfold. Will home prices drop? The answers lie in the complex interplay of factors, from mortgage rates to housing shortages, shaping the landscape. Stay tuned for a comprehensive exploration of what the future holds.

Will Housing Affordability Improve in 2024?

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Housing affordability is a major concern for many Americans, especially renters who face rising rents, stagnant incomes, and a limited supply of low-cost units. Housing affordability is not expected to see a major improvement in 2024 due to tight rental markets and high property prices.

According to a recent report by the Joint Center for Housing Studies of Harvard University, half of all US renters were cost-burdened in 2022, meaning they spent more than 30 percent of their income on rent and utilities. This was a record high of 22.4 million renter households, an increase of 3.2 percentage points from 2019.

The report also found that evictions have increased, homelessness has reached the highest levels on record, and the need for rental assistance is greater than ever. The Covid-19 pandemic and its economic fallout have exacerbated these challenges, leaving millions of renters at risk of losing their homes.

So, will housing affordability improve in 2024 in the US? The answer is not clear-cut, as there are many factors that affect the supply and demand of rental housing, as well as the availability and cost of financing. Here are some of the key trends and projections that may shape the rental market in 2024 and beyond.

Will Housing Affordability Improve in 2024?

Mortgage Rates and Home Affordability

  • Mortgage rates are expected to drop further in 2024, which could make homeownership more attractive for some renters who can afford the down payment and closing costs. However, mortgage rates are only one component of home affordability; home prices also play a crucial role.
  • Home prices have surged in recent years, driven by low inventory, high demand, and limited construction. According to the National Association of REALTORS®, on an annual basis, existing home sales (4.09 million) dropped to the lowest level since 1995, while the median price reached a record high of $389,800 in 2023. While home price growth may slow down in 2024, it is unlikely to reverse or decline significantly, as there is still a large gap between supply and demand.

Rental Demand and Supply

  • Rental demand may remain strong in 2024, as many renters are unable or unwilling to buy a home. Some renters may face credit or income constraints that prevent them from qualifying for a mortgage or saving for a down payment. Others may prefer renting for lifestyle or mobility reasons, such as young adults who value flexibility and convenience over homeownership. Moreover, some renters may be discouraged by the high home prices and low inventory in their desired locations, and opt to stay in their current rentals or look for cheaper alternatives.
  • Rental supply may increase slightly in 2024, as more multifamily units are completed and some homeowners decide to sell their homes and rent instead. According to the Harvard report, multifamily construction starts reaching 547,000 units in 2023, up from 509,000 in 2019. However, most of these units are aimed at the high end of the market, where vacancy rates are higher and rents are softer. The supply of low-rent units (below $800 per month) has shrunk by 2.5 million since 2011, while the number of renter households earning less than $30,000 per year has increased by 1.9 million.

Rental Assistance Programs

  • Rental assistance programs may provide some relief for low-income renters who struggle to pay their rent and utilities. The American Rescue Plan Act of 2021 allocated $21.6 billion for emergency rental assistance, on top of the $25 billion provided by the Consolidated Appropriations Act of 2020.
  • As of January 2024, about $18 billion of the first round of funding had been disbursed to more than 3 million households, according to the US Treasury Department. However, many renters still face barriers to accessing these funds, such as lack of awareness, documentation requirements, landlord cooperation, and bureaucratic delays.

Therefore, housing affordability is unlikely to improve significantly in 2024 in the US, as rental markets remain tight and home prices remain high. However, there may be some opportunities for renters who can take advantage of lower mortgage rates and increased rental supply at the upper end of the market.

For low-income renters who face severe cost burdens and housing instability, rental assistance programs may offer some temporary relief, but more long-term solutions are needed to address the underlying structural issues of inadequate supply, insufficient income, and unequal access.

When Will the Fed Cut Rates in 2024? Here’s What Forecasts Say

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If you are wondering when the Federal Reserve will start cutting interest rates in 2024, you are not alone. The Federal Reserve is facing a delicate balance between fighting inflation and supporting economic growth. While many economists expected the Fed to begin reducing rates in the second quarter of 2024, recent economic data suggests a more cautious approach.

When Will the Fed Cut Rates in 2024?

Many investors and consumers are eager to see lower borrowing costs after two years of rapid rate hikes that have pushed mortgage and credit card rates to their highest levels in decades.

Fed's Rate Hikes and Impact

The Fed began raising rates in March 2022 to combat high inflation, which had reached a 40-year high by the end of that year. In a series of aggressive moves, the Fed increased the federal funds rate by 5 percentage points, from a near-zero level of 0.25% to 5.25% by June 2024 Federal Reserve Board, H.15 Selected Interest Rates.

These actions helped to slow down the economy and moderate price increases. By January 2024, the inflation rate had declined to 3.1%, but it remained above the Fed's target of 2%. The Fed has indicated that it will continue to monitor inflation closely and is prepared to take further action if necessary to bring inflation back down to its target level.

Fed's Cautious Approach to Rate Cuts

  • The Fed has signaled that it wants to see more evidence that inflation is under control before it begins to cut rates.
  • Fed chair Jerome Powell emphasized the need for confidence that inflation is receding before reducing rates [CBS News, “60 Minutes”].
  • The Fed also wants to avoid cutting rates too soon and risk reigniting inflationary pressures.

Economic Challenges for the Fed

  • The US gross domestic product (GDP) grew by 2.6% in 2023, down from 3.1% in 2022, and is expected to grow by only 1.9% in 2024 [Congressional Budget Office (CBO)].
  • The unemployment rate has risen slightly from 3.5% in December 2022 to 3.8% in December 2023, and is expected to rise further to 4.1% by the end of 2024 [CBO].
  • The Fed is acknowledging headwinds such as supply chain disruptions, labor shortages, geopolitical tensions, and COVID-19 variants.

Market Expectations and Analyst Insights

  • Most analysts now believe the Fed will start cutting rates sometime in the second half of 2024, with the September meeting a strong possibility. This shift in expectations from an earlier June cut reflects the Fed's concern about inflation, which has proven more persistent than initially anticipated. However, some analysts believe the Fed could act sooner if incoming economic data shows inflation cooling down more rapidly than expected. For example, a significant decline in energy prices or a softening in core inflation (which excludes food and energy prices) could prompt the Fed to move at its July meeting.
  • Conversely, some analysts predict the Fed might wait until later in the year, possibly even December, if inflation remains stubbornly high or if the economy proves more resilient than expected. Stronger-than-anticipated job growth or a pickup in consumer spending could give the Fed more confidence to allow inflation to run somewhat higher for a longer period before easing rates. Ultimately, the timing of the first rate cut will depend on the Fed's assessment of the incoming economic data and its evolving outlook for inflation and economic growth.

Potential Rate Cut Scenarios

The pace and magnitude of the rate cuts will depend on the evolving economic situation.

  • Aggressive cuts: Some analysts expect the Fed to take a more aggressive approach to rate cuts, potentially reducing rates by 200 basis points (2 percentage points) by the end of 2024 and another 200 basis points by the end of 2025. This scenario is predicated on a significant slowdown in the economy and a rapid decline in inflation. If the economy weakens more than expected, or if inflation falls faster than anticipated, the Fed could feel compelled to cut rates more aggressively to stimulate growth and prevent a recession.
  • Gradual cuts: Other analysts expect a more gradual approach, with the Fed cutting rates by 100 basis points (1 percentage point) by the end of 2024 and another 100 basis points by the end of 2025. This scenario assumes a moderate slowdown in the economy and a gradual decrease in inflation. The Fed would likely adopt this approach if the economy shows signs of slowing down but remains on relatively stable footing, and if inflation continues to trend downwards but at a slower pace.

When Will Mortgage Rates Drop to 6% (Predictions by Experts)

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The housing market has been on a rollercoaster ride in recent years, with mortgage rates fluctuating dramatically. As of June 2024, there's a glimmer of hope for potential homebuyers as rates have dipped below 7% for 30-year fixed-rate loans. This is a significant improvement from the 8% rates seen just a few months ago.

However, many prospective homeowners are eagerly anticipating a more substantial decrease, particularly to the 6% range. Let's delve into what experts are saying about the possibility of mortgage rates dropping to 6% and the factors that could influence this change.

When Will Mortgage Rates Drop to 6%?

The Current Mortgage Rate Landscape

Before we explore predictions, it's essential to understand the current state of mortgage rates. According to the provided information, the average mortgage rate for a 30-year fixed-rate loan is now below 7%. This decrease is attributed to:

  • A cooling labor market
  • Signs of tempering inflation
  • A shift in economic indicators

While these rates are still higher than the historic lows of 3% seen in 2020 and 2021, they represent a positive trend for homebuyers.

Factors Influencing Mortgage Rate Drops

Several key factors play a role in determining mortgage rates:

  1. Federal Reserve Benchmark Rate: While not directly tied to mortgage rates, the Fed's rate decisions significantly impact them.
  2. Inflation: Cooling inflation helps reduce bond yields, which in turn affects mortgage rates.
  3. 10-Year Bond Yield: Mortgage rates typically move in tandem with this yield.
  4. Labor Market: A softening labor market can lead to lower mortgage rates.
  5. Mortgage-Backed Securities (MBS) Market: Investor behavior in this market can influence consumer mortgage rates.

Expert Predictions on Reaching 6% Mortgage Rates

Experts have varying opinions on when we might see mortgage rates drop to 6%. Here are some key predictions and insights:

Melissa Cohn, Regional Vice President of William Raveis Mortgage:

  • Predicts that continued cooling of inflation is crucial for rates to drop further (CBS News).
  • Suggests that at least another month of data showing cooling inflation is needed for rates to reach 6% for most borrowers.
  • Notes that some special cases, like VA loans, are already close to the 6% mark.

Logan Mohtashami, Lead Analyst at HousingWire:

  • Emphasizes the importance of the inflation growth rate moving towards the Fed's 2% target.
  • Expects labor and economic data to continue softening, leading to lower bond yields and mortgage rates.
  • Describes the relationship between 10-year yields and 30-year mortgages as a “slow dance.”

Mark Worthington, Branch Manager for Churchill Mortgage:

  • Highlights the role of investors in the MBS market.
  • Suggests that for rates to drop below 6%, we need to see:
    • A slowing economy
    • Reductions in other markets
    • Fed rate cuts

Potential Roadblocks to Lower Rates

While many indicators point towards a potential rate drop, there are factors that could keep rates stable or even push them higher:

  • Strong employment data
  • Rising inflation
  • Firm economic conditions
  • Accelerating wage growth

Worthington notes that our current rate environment is actually healthy when viewed in historical context, stating, “When you study history and look back in time, our rates now are very close to the average over the last 54 years.”

The Bottom Line for Homebuyers

For those waiting for lower rates before making a move in the housing market, there's reason for cautious optimism. While we're unlikely to see a return to the record-low rates of the pandemic era, a drop to 6% seems possible in the near future, depending on various economic factors.

If you're looking to buy soon and can't wait for potential rate drops, consider these options:

  • Look into adjustable-rate mortgages (ARMs) which often offer lower initial rates than fixed-rate options.
  • Keep an eye on economic indicators, especially inflation data and Fed announcements.
  • Work with a mortgage professional to explore all available loan options and timing strategies.

Remember, while lower rates are desirable, they're just one factor in the homebuying decision. Consider your overall financial situation, long-term goals, and the specifics of your local real estate market when making your decision.

As the market continues to evolve, staying informed and working with knowledgeable professionals can help you navigate the complex world of mortgage rates and home buying. Keep in mind that predictions are just that – predictions – and the actual trajectory of mortgage rates will depend on a complex interplay of economic factors in the months to come.

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Donald Trump Warns US Fed Chair to Hold Off Rate Cuts Before Election

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In a recent turn of events, former President Donald Trump has sent a stern message to the US Federal Reserve Chair, Jerome Powell, advising against any rate cuts before the upcoming election. The ex-president's comments have sent ripples through the financial community, raising questions about the Fed's independence and the broader implications for the economy. This article delves into the details of Trump's warning and its potential impact.

Donald Trump Warns US Fed Chair to Hold Off Rate Cuts Before Election

Trump's History with the Federal Reserve

Donald Trump's relationship with the Federal Reserve has always been a point of interest. During his tenure as President, Trump was vocal about his dissatisfaction with the Fed’s policies, often calling for lower interest rates to stimulate economic growth. His latest statements suggest that his stance hasn't changed, even outside of the White House.

Current Economic Climate

The US is grappling with high inflation rates and economic uncertainty. The Federal Reserve has been cautious with its monetary policy, aiming to strike a balance between curbing inflation and fostering growth. Trump's comments come at a time when the nation is watching the Fed's moves closely, given the upcoming elections and the economy's delicate state.

The Core of Trump's Warning

Key Points from Trump's Statement

In an interview with Bloomberg Businessweek, Trump emphasized that the Federal Reserve should hold off on any rate cuts until after the November elections. His key points included:

  • The importance of maintaining current interest rates to ensure economic stability.
  • Concerns about the economic repercussions of a premature rate cut.
  • A promise to let the Fed operate independently if he were re-elected.

Rationale Behind Trump's Warning

Trump's rationale appears to be rooted in a desire to avoid any economic disruptions that could impact the election's outcome. By keeping interest rates steady, he believes the economy will remain stable, preventing any potential backlash from a rate cut that might lead to market instability.

Implications for the Federal Reserve

Impact on Fed's Independence

Trump's warning raises significant questions about the independence of the Federal Reserve. Historically, the Fed operates free from political pressure to make decisions purely based on economic indicators. However, Trump's comments suggest a potential shift towards politically-influenced monetary policy, which could undermine the institution's credibility.

Possible Economic Outcomes

The potential economic impacts of maintaining the current interest rates versus cutting them are multifaceted:

Scenario Potential Outcome
Maintaining Rates May ensure economic stability, prevent inflation rise, and support steady growth.
Cutting Rates Prematurely Could stimulate short-term growth but may lead to higher inflation and market instability.

By keeping the rates steady, the Fed might avoid triggering inflation, but it could also miss out on opportunities for economic stimulation that a rate cut could provide. The decision, therefore, is a balancing act influenced heavily by Trump's pressures.

Market Reactions

Investor Sentiment

The financial markets have responded cautiously to Trump's comments. Investors are now closely monitoring the Federal Reserve's announcements, trying to predict the next move. This uncertainty can lead to volatility, impacting stocks, bonds, and other financial instruments.

Opinions from Economists

Economists are divided on the issue. Some argue that the Fed should continue its cautious approach, while others believe that a rate cut might be necessary to support economic growth. The consensus, however, leans towards allowing the Fed to make decisions based on economic data rather than political influence.

Bottom Line: Donald Trump's warning to the US Fed Chair not to cut rates before the election adds a new layer of complexity to the already intricate world of monetary policy. While his intentions may be to ensure economic stability during a politically sensitive time, the broader implications for the Fed's independence and the economy cannot be ignored.

As the election approaches, the decisions made by the Federal Reserve will be scrutinized more than ever, underlining the significant interplay between politics and economic policy.

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U.S. Mortgage Debt Soars to $20.3 Trillion in Q1 2024

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Homeownership is often cited as a significant milestone in the pursuit of the American dream. For many, owning a home is a crucial step toward financial independence and success. However, purchasing a home outright is a challenge for most Americans, making mortgages a common necessity. But how much mortgage debt do Americans carry on average, and what is the current state of mortgage delinquencies?

How Much Mortgage Debt Do Americans Have on Average?

As of the first quarter of 2024, total mortgage debt in the United States stood at a staggering $20.3 trillion, according to data from the Federal Reserve Economic Data (FRED). A significant portion of this debt is tied to single-family and multi-family residences, amounting to over $14 trillion. American households and nonprofit organizations hold about $13.1 trillion of this debt.

Other forms of mortgage debt include loans on multifamily residences, nonfarm and nonresidential properties, and farms. The rising home prices have led to an increase in the number of mortgages, with homeowners typically making a down payment of 10% to 20% and financing the rest through a mortgage.

Government-sponsored enterprises like the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac), and the Federal Home Loan Banks (FHLBs) have been major players in the mortgage market since the 2008–2009 financial crisis. These entities currently hold $7.4 trillion in mortgages, representing more than a third of the total mortgage debt.

Current Housing Market Data

The U.S. Census Bureau's New Residential Sales report for April 2024 showed that the seasonally adjusted annual rate of new single-family home sales was 634,000. The inventory of new homes for sale was 480,000, equating to a supply of 9.1 months at the current sales pace.

Average Mortgage Debt on Single-Family Homes

The average price of a single-family home in the U.S. has risen to $420,800, up from $165,300 at the start of 2000. Consequently, the average mortgage amount has also increased. As of May 2024, the average loan size for new homes was $400,150, according to the Mortgage Bankers Association (MBA). The national median monthly mortgage payment was $2,256 in April 2024, up $144 from the previous year. This brings the average annual mortgage payment to $27,072, which is less than half of the median annual salary of $59,228 before taxes, based on data from the U.S. Bureau of Labor Statistics.

Average Mortgage Interest Rates

In June 2024, the average interest rate for a 30-year fixed-rate mortgage in the U.S. was 6.87%. This is significantly higher than the 2.66% rate seen in December 2020 during the COVID-19 pandemic but still below the record highs of the early 1980s.

Mortgage Delinquency Rates

The delinquency rate for single-family home mortgages stood at 1.71% in the first quarter of 2024, which is higher than the 1.45% average delinquency rate for all real estate loans. Here's a breakdown of delinquency rates by loan type:

  • Residential (Booked in Domestic Offices): 1.71%
  • Commercial (Booked in Domestic Offices): 1.18%
  • Farmland (Booked in Domestic Offices): 1.03%
  • Credit Cards: 3.16%
  • Other Consumer Loans: 2.17%
  • Total Loans and Leases: 1.43%

Impact of Mortgage Debt Delinquency

Americans are more likely to fall behind on credit card debt than on mortgage debt. However, missing mortgage payments can lead to foreclosure, where the bank may sell the home to recover the debt. Unlike credit card debt, which doesn't typically lead to property loss, mortgage delinquency has more severe consequences.

Banks can offer forbearance to delinquent borrowers, especially those with federally backed mortgages through the Federal Housing Administration (FHA). Under the CARES Act, homeowners could request an initial forbearance of up to 180 days, with an option for an additional 180 days. In April 2024, only 0.22% of mortgage loans were in forbearance, affecting around 110,000 homeowners.

Conclusion

The landscape of mortgage debt in America is substantial, with millions of homeowners navigating significant financial commitments. While mortgage debt can be a path to homeownership and financial security, it also carries risks, particularly when economic conditions fluctuate. Understanding the average debt levels, interest rates, and delinquency trends can help homeowners make informed decisions and manage their finances more effectively.

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