Housing Market Activity on the Rise, but Low Supply Poses Challenge

The housing market is seeing increased activity as mortgage applications rise, but low supply of homes for sale may suppress growth. Despite slight interest rate increases, stability remains in 2024.

The housing market is showing signs of increased activity as mortgage applications continue to rise, indicating a growing number of buyers entering the market. However, the low supply of homes for sale could potentially suppress this activity. Despite a slight increase in mortgage interest rates, they have remained relatively stable in the early part of 2024, in contrast to the volatility experienced in the past two years.

According to the latest Freddie Mac survey, the 30-year fixed-rate mortgage averaged 6.69% this week, up from last week's 6.6%. The 15-year fixed-rate mortgage saw a more significant jump, rising from 5.76% to 5.96% in the past week. While the 30-year rate has remained between 6.6% and 6.7% for over a month, most economists expect to see larger declines at some point in 2024. However, the current strength of the economy could delay expected rate cuts by the Federal Reserve, potentially pushing them into later in the year.

In the short term, rates may continue to rise, with Mortgage News Daily reporting the 30-year average at 6.9% for Jan. 25. The Federal Reserve is now facing the challenge of determining the optimal timing for a shift to rate cuts, balancing the risk of a recession with the potential spike in inflation. However, the rate debate may become irrelevant if there aren't enough homes to buy, as low inventory of existing homes continues to be a problem, keeping the housing market slow.

While inventory is slightly up compared to last year, it remains well below pre-pandemic levels. Buyers are having to make decisions such as opting for a townhome instead of a single-family home, looking at communities in different parts of the market, and considering homes with a rental stream. On the other hand, builders are getting more homes into the market, with new home sales in December reported to be 8% higher than November and 4.4% higher than December 2022.

The Mortgage Bankers Association reported a 3.7% increase in mortgage applications last week, marking the third consecutive week of increases. This trend suggests that more buyers are taking advantage of stable mortgage rates and trying to secure a home before the market gets crowded this spring. However, purchase applications were still 18% below last year's level, indicating that challenges remain in the housing market.

While the housing market is showing signs of increased activity with rising mortgage applications and stable interest rates, the low supply of homes for sale continues to be a challenge. The Federal Reserve is facing a dilemma in determining the optimal timing for rate cuts, and the housing market is expected to remain slow due to low inventory of existing homes.