July 14, 2024

U.S. Housing Market Braces for Extended Freeze

The U.S. housing market, known for its ups and downs, seems stuck in a prolonged freeze. According to Fannie Mae economists, this housing market freeze could linger into 2024, regardless of whether or not the economy manages to dodge a recession.

“Regardless of whether a soft landing is achieved over the coming year, we expect existing home sales to stay subdued and within a tight range,” they wrote. So, what’s causing this deep freeze, and what does it mean for potential homebuyers?

Existing home sales have dropped by 2.2% in July compared to the previous month. This translates to an annual rate of 4.07 million units, a significant decline of 16.6% compared to last year. The culprit is skyrocketing mortgage rates.

Mortgage rates have shot up to levels not seen in two decades. According to Freddie Mac, the 30-year fixed mortgage rate hit a staggering 7.23% this week, well above the 5.55% rate recorded just a year ago. The pre-pandemic average of 3.9% feels like a distant memory. This marks the highest level for mortgage rates since 2001.

Due to affordability constraints, these soaring mortgage rates are locking out many would-be buyers. Sellers who secured low mortgage rates pre-pandemic are now hesitant to sell their homes, given the current high rates. This reluctance has resulted in a limited supply of homes on the market. In July, the number of available homes decreased by over 9% from the previous year and a whopping 46% from the pre-pandemic norm.

“With an ongoing tight supply of existing homes for sale and the recent rise in 30-year fixed-rate mortgage rate to around 7%, we expect home sales in 2023 to remain near the lowest annual level since 2009,” Fannie Mae economists said. 

Fannie Mae economists anticipate that, even if the economy avoids a recession this year, the housing market’s affordability challenges will persist due to the ongoing limited supply of homes for sale. In the unfortunate event of an economic downturn, mortgage rates might drop slightly. Still, the housing market would face many other issues, from a weakening labor market to tighter credit conditions.

“We, therefore, do not anticipate a meaningful recovery in existing home sales over our forecast horizon under any of the more likely scenarios,” Fannie Mae said.

Whether you’re a potential buyer or seller, keeping a close eye on these developments and preparing for a challenging road ahead in the housing market is essential. While there’s optimism that the economy may dodge a recession, Fannie Mae economists still foresee a downturn in 2024, with real GDP expected to slide by 0.2% year over year by the fourth quarter. So, bundle up because it looks like the housing market’s deep freeze is here for the foreseeable future.

Share the Post:

Related Posts