Mortgage interest rates are currently in a stable position, with only a minimal increase seen this week. The 30-year fixed-rate mortgage rate has risen by three basis points, averaging at 6.19%. It’s important to note that a basis point represents one one-hundredth of a percentage point.
While mortgage rates play a significant role in the housing market, they are just one piece of the puzzle. Factors such as the number of homes available for sale and home prices also contribute to the overall market conditions for home buyers. As we enter the final quarter of 2024, let’s take a closer look at the current state of affairs.
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Rates are fairly favorable
Despite a recent uptick in rates, mortgage interest rates currently sit at their lowest levels in over two years. The last time we observed average 30-year rates in the sixes was back in September 2022. Additionally, current rates are significantly lower than the peak seen last year, which almost hit 8% in October 2023.
Lower interest rates provide home buyers with greater purchasing power. For instance, at last year’s peak of 7.79%, a buyer with a budget of $2,200 for monthly principal and interest could afford a home valued at around $278,000. However, with today’s 6.19% rate, the same buyer can afford a $318,000 home, indicating an additional $40,000 in buying capacity.
While it’s tempting to imagine the possibilities of even lower interest rates, economic forecasts suggest that rates may only slightly decrease by the end of this year and into 2025. The forecasted drop from the low sixes to the high fives is not expected to make a substantial impact for most buyers.
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Inventory is edging upward
After years of limited housing inventory, there has been a notable increase in available homes. In August 2024, there were 1.35 million existing homes listed for sale, as reported by the National Association of Realtors. This figure excludes new construction homes and represents the highest inventory level in the U.S. since fall 2020, a period characterized by robust home sales.
The last time inventory reached this level, monthly home sales were over 40% higher than they are currently. Concurrently, as inventory levels rise, home sales are progressing at a slower pace. The NAR uses a metric called months’ supply to gauge inventory levels, indicating how long it would take to sell all current inventory at the current sales rate if no new homes were added to the market.
In August 2024, the months’ supply stood at 4.2 months, in contrast to just 2.6 months during the last high-inventory period. With more homes available for sale but selling at a slower pace, buyers may find themselves in a stronger negotiating position.
Prices still a sticking point
Despite the increase in housing inventory, home prices have not seen a significant decline. The fundamental economic principle of supply and demand suggests that as supply rises, prices should go down. However, the current market dynamics show that demand remains high enough to offset the increase in supply.
According to NerdWallet’s Home Buyer Report, only 23% of Americans who aimed to purchase a home in 2023 were successful. Median existing home prices hit record levels this summer, with slight monthly fluctuations but overall remaining high. In August, the median price of an existing home was $416,700, as per NAR data.
It’s important to recognize that national data may not fully reflect the situation in individual markets. For example, median list prices vary significantly across different metro areas in the U.S. Realtor.com data from September 2024 reveals diverse trends, with some areas experiencing price increases while others see declines.
Ultimately, the state of the housing market, whether on a national or local level, should not overshadow your personal homebuying journey. If you can find a home that meets your needs in a location you desire, you’re in a housing market that suits you.
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In Conclusion…
As we navigate through the current state of the housing market, it’s evident that mortgage interest rates, inventory levels, and home prices all play a crucial role in shaping the landscape for home buyers. While interest rates remain favorable and inventory is on the rise, prices continue to pose a challenge for aspiring homeowners.
Despite the intricacies of market trends and forecasts, what truly matters is finding a home that fits your lifestyle and financial goals. Regardless of national market fluctuations, your individual buying power and preferences should guide your decision-making process.
So, whether you’re tracking interest rates, scouting for the perfect property, or negotiating a deal, remember that your journey to homeownership is unique and deserves to be approached with confidence and clarity.
