The U.S. housing market continues to struggle, showing little sign of recovery from its three-year slump. The spring buying season was a disappointment, and the outlook for the summer and fall remains bleak.
Homebuyers entered 2024 hopeful that mortgage rates would drop further following a decline late last year. However, optimism waned as stronger-than-expected inflation and economic data clouded the timing of a potential rate cut by the Federal Reserve. By April, the average rate on a 30-year mortgage surpassed 7% for the first time since November, coupled with record-high home prices. This combination forced many potential buyers to pause their search, some indefinitely.
Economists predict a modest easing of mortgage rates by the end of the year, but slight declines may not be sufficient to attract buyers or encourage homeowners to sell. The spring homebuying season, typically accounting for over a third of annual home sales, was again underwhelming. Sales of existing homes declined from a year earlier, continuing a trend seen in 2022 and 2023.
The persistent affordability issues are reflected in the high mortgage rates, which remain near 7%, a historically low inventory of homes for sale, and record-high home prices. Despite some recent economic data suggesting slower growth and a potential lid on inflation, which could prompt the Fed to cut rates, the average 30-year mortgage rate is expected to stay above 6%.
The number of homes on the market at the end of May was the highest since August 2022, yet the supply remains below pre-pandemic levels. The inventory shortage stems from over a decade of below-average new home construction and demographic trends keeping homeowners in their properties longer.