A Modest Start to 2024’s Housing Market, But Challenges Remain
The U.S. housing market saw a slight uptick in activity to begin the year, offering a glimmer of hope after a challenging 2023. However, a recent rise in mortgage rates threatens to dampen the traditionally busy spring selling season.
According to the National Association of Realtors (NAR), existing-home sales in February increased by 1.7% from January, reaching a seasonally adjusted annualized rate of 4.09 million units. Despite this monthly gain, sales remain 1.4% below the February 2023 level, underscoring the persistent affordability hurdles facing buyers.
Why February’s Numbers Tell a Story of Late 2023
It’s important to note that these figures represent closed sales, meaning the purchase agreements were likely signed in December and January. During that period, the average 30-year fixed mortgage rate had retreated from its autumn peaks, settling into a range near 6%. This was approximately one full percentage point lower than the rates seen a year earlier, providing a modest affordability boost that likely supported the deals that closed in February.
“Despite the modest gain in home sales, actual housing demand remains muted relative to wage growth and job gains,” said Lawrence Yun, Chief Economist for the NAR. He pointed to a key positive: “Wage growth is now outpacing home price growth by almost four percentage points.” Yet, he also highlighted a structural imbalance, noting there are over 6 million more jobs now than in 2019, yet annual home sales are down by about 1 million units from that period.
The Dual Headwinds: Inventory and Affordability
While slightly lower mortgage rates helped, the fundamental issue of severely limited inventory continues to constrain the market. At the end of February, total housing inventory stood at 1.29 million units, a 2.4% increase from January and a 4.9% rise from February 2023. However, this supply only represents a 3.8-month supply at the current sales pace—far below the 6-month supply considered indicative of a balanced market. This scarcity keeps competition high and prices elevated.
One encouraging sign on the supply front comes from Redfin, which reported a record number of sellers who had previously taken their homes off the market are now relisting. Nearly 45,000 homes that were delisted in 2023 were placed back on the market in January 2024, the highest January figure in a decade and accounting for 3.6% of all active listings that month.
“Inventory is growing, but sluggishly,” Yun cautioned. “If demand picks up notably in the coming months and outpaces supply growth, home prices will inevitably rise. That is why increasing supply is so important to help limit home price growth, improve housing affordability, and boost transactions.”
Price Divisions and Shifting Buyer Profiles
Tight supply continues to nudge prices upward, albeit slowly. The median existing-home sale price in February was $398,000, a 0.3% increase year-over-year. The market remains bifurcated, with sales strength concentrated at the higher end. Transactions for homes priced at $1 million or more remained robust, while sales in the lowest price tiers declined sharply.
The time it takes to sell a home is also lengthening, averaging 47 days in February, up from 42 days a year ago. On the buyer side, first-time buyers represented 34% of total sales, an increase from 31% a year ago. The investor share held steady at 16% of all sales.
Looking Ahead: The Spring Test
The housing market’s performance in the coming months will be a critical test. The initial 2024 data reflects a market operating under mortgage rates that have since climbed back above 6.5% and are trending higher. This renewed rate pressure, combined with persistent inventory shortages, creates a significant barrier for many prospective buyers, particularly first-time homeowners.
The path forward hinges on two competing forces: whether the gradual increase in sellers listing their homes can accelerate into a meaningful supply boost, and whether the recent rate increases will cause buyers to pause, reducing demand just as more inventory might arrive. For now, the market remains in a delicate limbo, with prices supported by scarcity but transaction volume constrained by cost.
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