The Housing Market Demonstrates a Remarkable ‘Return to Normal’ Overnight—Let’s Explore

After experiencing extremes—from the frenzy of the COVID-19 housing boom to the stagnation induced by soaring mortgage rates—the real estate market now seeks equilibrium, a return to normalcy.

In the week ending January 20, signs emerged indicating a shift towards this anticipated balance.

“This past week, the housing market showed the early signs of a return to normal, with slowing median listing price growth, a growing inventory of homes for sale, and mortgage rates which have fallen more than a percentage point from their recent peak,” states Sabrina Speianu, economic data manager at Realtor.com®, in her latest analysis.

According to the most recent data from Freddie Mac, mortgage rates for a 30-year fixed-rate home loan saw a slight uptick, averaging 6.69% for the week ending January 25. However, this figure has maintained relative stability over the past month, remaining within a narrow range, notes Sam Khater, Chief Economist at Freddie Mac. (The previous week’s rate averaged 6.60%.)

As winter persists for nearly two more months, the question arises: Will prospective buyers and sellers brave the chill to capitalize on this unexpectedly moderate market?

In the latest installment of “How’s the Housing Market This Week?” we delve into what the latest housing market data means for those considering entering the real estate arena, offering insights for those contemplating a move from the sidelines.

Anticipation mounts as the next Federal Reserve meeting approaches at the end of the month, drawing keen interest from all corners of the market. Why the fervor? Well, the Fed’s consistent push to raise interest rates, aimed at curbing surging inflation, has been the driving force behind the dramatic doubling of mortgage rates over the past couple of years.

However, a shift is now on the horizon. With inflation showing signs of subsiding and inching closer to the Fed’s targeted 2% mark, the stage is set for a potential reversal in interest rate policies.

This shift is expected to exert downward pressure on mortgage rates. Yet, prospective homebuyers and homeowners eyeing refinancing may need to exercise patience, as these eagerly awaited rate cuts are unlikely to materialize until the spring or summer months.

“Looking forward, recent employment and inflation data came in relatively strong, suggesting that the Fed will likely opt to hold the policy rate steady in their upcoming meeting,” explains Sabrina Speianu. “Continued progress toward the 2% inflation rate target is expected, and this will eventually improve housing market conditions in 2024.”

As the market braces for potential changes in the interest rate landscape, stakeholders remain poised to adapt to evolving conditions, with the hope of fostering a more conducive environment for housing market activity in the coming year.

The latest data on home prices brings a glimmer of hope for prospective buyers who have long grappled with soaring housing costs. While the median home list price saw a modest uptick of 1.9% for the week ending January 20 compared to the same period the previous year, the pace of price growth notably decelerated from the preceding week. (In December, the median listing price had surged to $410,000.)

This shift signals a welcome change for buyers, who have faced relentless upward pressure on prices in recent years. Although prices continue to rise, they are now doing so at a much slower rate compared to the double-digit surges witnessed during the height of the pandemic.

“Listing price growth appears to be cooling after reaching a 35-week high during the week ending January 6,” notes Sabrina Speianu. “If this trend continues, homebuyers stand to benefit from a decline in mortgage rates and slower, moderate home price appreciation.”

As the market inches towards a more balanced state, buyers may find themselves in a more favorable position, with the potential for both reduced mortgage costs and a more sustainable trajectory for home prices.

The start of the new year has ushered in a welcomed influx of homes hitting the market, a stark contrast to the scarcity seen during much of the preceding year.

In the week ending January 20, new listings saw a 3.4% increase compared to the same period a year ago. Although this growth rate is slightly lower than the previous week’s 7% surge, it marks the 13th consecutive week where newly listed homes have surpassed levels from the previous year, as observed by Speianu.

Moreover, active listings, encompassing both new and existing homes for sale, experienced an 8.6% uptick for the week ending January 20 compared to the previous year. This extends an 11-week streak of year-over-year growth in inventory.

These developments spell promising news for buyers, with no signs of a slowdown in inventory growth. As Speianu notes, the continuous expansion in inventory bodes well for those in the market, offering them a wider selection of properties to choose from.

The argument against waiting for the spring market

While some prospective buyers and sellers may be inclined to wait for the traditionally bustling spring housing market to commence before diving into the real estate fray, the current landscape suggests otherwise.

Indeed, many home seekers have already entered the fray, actively pursuing properties and swiftly finalizing transactions.

In the week ending January 20, the average home spent four fewer days on the market compared to the same period last year. This acceleration in the pace of sales, noticeable even more starkly when considering December’s average of 61 days on the market, can be attributed to several factors.

Firstly, the market has seen a surge in new listings, providing buyers with an expanded pool of options. Secondly, lower mortgage rates have further fueled buyer enthusiasm, prompting them to act swiftly when encountering homes within their budget.

For those contemplating a move, whether as buyers eager to secure a property or sellers looking to transition to a new home, seizing the current opportunity may be prudent. Waiting risks facing heightened prices and fiercer competition, making prompt action a strategic move in the current market environment.

Matthew Graham
Matthew Graham
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