Analyzing New Home Sales Trends: Insights for Buyers and Sellers in November 2024

As of November 2024, the U.S. housing market presents a complex landscape for both buyers and sellers. Recent data indicates a nuanced interplay between home sales, inventory levels, and pricing trends.

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How is Mortgage Activity Responding to Changing Mortgage Rates?

Recent shifts in mortgage rates have shown a noticeable impact on mortgage activity, particularly regarding refinance and purchase applications. In August, the average fixed-rate mortgage dipped from 6.85% in July to approximately 6.5%, concluding the month at 6.35%. This decline sparked a slight uptick in mortgage activity, primarily driven by increased refinancing.

Refinance Activity

As rates eased, refinance applications saw a resurgence. Falling interest rates motivated homeowners to reconsider their existing loans, leading to refinancing making up 46.4% of all mortgage applications by the end of August. This reflects a growing interest in optimizing financial situations amidst the favorable rate environment.

Purchase Applications

However, the scene is different for home purchase applications. Despite the drop in rates and the fourth consecutive week of declines, many potential buyers remain cautious. The constant wait for even lower rates, coupled with rising housing inventory, contributes to the sluggish movement in purchase applications.

In summary, while refinancing is gaining traction due to decreasing rates, homebuyers are taking a measured approach. They are observing the market carefully, waiting for a more opportune moment to make their purchase decisions.

Current State of Home Sales

In October 2024, sales of previously owned homes rose by 3.4% from the previous month, reaching a seasonally adjusted annual rate of 3.96 million units. This marks the most significant increase since February, suggesting a potential stabilization in the market. (Bloomberg)

Current Credit Conditions and Adjustments in Lending Standards

As of the second quarter of 2024, credit conditions have shown signs of easing. Data from a recent survey reflects a positive shift, with the proportion of banks tightening credit standards decreasing to 7.9%. This marks a notable decline from the previous quarter’s 15.6% and represents the lowest point since the Federal Reserve initiated its policy tightening in 2022.

For consumer lending, such as credit cards and personal loans, banks have generally maintained or slightly eased standards. While a small to moderate percentage of banks (10% to 20%) reported stricter standards, it primarily affected credit limits on these loans.

The landscape for auto loans remains stable, as most banks reported unchanged lending standards. However, demand for these loans has softened, indicating a shift in consumer interest or purchasing power.

In the realm of commercial real estate loans, banks have been more cautious. A significant portion, ranging from 20% to 50%, implemented tighter standards, likely in response to market conditions or regulatory pressures.

Meanwhile, residential real estate lending seems to be stable, with banks showing minimal change in their lending criteria.

Overall, while some areas like commercial real estate see stricter measures, the general trend suggests a gradual relaxation of credit conditions, providing more borrowing opportunities for both consumers and businesses.

Recent Developments in the U.S. Economy

Recent data from the Bureau of Economic Analysis highlights notable growth within the U.S. economy in the second quarter of 2024. Specifically, the Gross Domestic Product (GDP) rose at a robust annualized rate of 3%. This marks a significant improvement from the 1.4% growth observed in the first quarter.

Consumer Spending Surge

A key driver behind this economic upswing was consumer spending. It experienced a notable increase, rising at an annualized rate of 2.9% in Q2, up from the 1.5% growth in Q1. Such spending contributed two percentage points to the overall GDP growth in the second quarter, doubling its contribution from the previous quarter.

Boost from Private Inventory Investment

In addition to consumer spending, private inventory investment played a vital role in propelling GDP growth. This area showed a marked improvement and added to the overall economic expansion.

Residential Investment Decline

However, it’s important to note that these positive contributions were somewhat balanced by a decline in fixed residential investment. Despite this setback, the general trend suggests a stronger economic outlook for the near future.

These developments underscore the dynamic nature of the U.S. economy, shaped by varied contributions from different sectors.

Inventory Levels and Their Impact

Despite the uptick in sales, housing inventory remains constrained. The total housing inventory at the end of October stood at 1.39 million units, up from 1.37 million in September but still below the levels needed to meet current demand. (YCharts) This limited supply continues to exert upward pressure on home prices. Learn more about factors that affect home prices and how supply plays a role.

However, it’s not just supply that’s influencing the housing market. Interest rates play a critical role in housing affordability. Recent higher rates have made mortgages more expensive, directly impacting buyers’ purchasing power and consequently, the overall market sentiment.

The homebuilder confidence index also reflects these challenges. According to the National Association of Home Builders, the index fell to 39 in August from 41 in July, remaining below the threshold of 50. This indicates builders are anticipating unfavorable conditions over the next six months.

Moreover, despite a drop in interest rates, the expected positive impact on construction hasn’t materialized. In fact, housing starts in July were at a seasonally adjusted annual rate of 1.24 million, marking a 6.8% decline from June’s 1.33 million units. Single-family housing starts were particularly affected, dropping 14.1% from the previous month and 14.8% from the same period last year.

These elements—limited inventory, fluctuating interest rates, and declining construction activity—collectively paint a complex picture of the current housing market, affecting both affordability and builder confidence.

Pricing Trends

The median existing-home price for all housing types in October was $407,200, reflecting ongoing appreciation. (NAR) However, the pace of price increases has shown signs of moderation, with some regions experiencing slower growth rates. Buyers concerned about rising costs can explore strategies for making homebuying more affordable.

In June 2024, the FHFA House Price Index indicated a slight month-over-month decline of 0.1%, yet a notable 5.1% rise year-over-year. This deceleration in monthly appreciation has been linked to elevated mortgage rates and increased housing inventory. Understanding these dynamics can help buyers make informed decisions.

Regional Variations

Market conditions vary across different regions. For instance, cities like Tampa, Denver, Phoenix, Dallas, and San Francisco have seen increased home listings, providing buyers with more choices and reducing competition. Conversely, areas such as Chicago, Cleveland, New York, Detroit, and Boston have more constrained listings, resulting in quicker price gains. (Barrons)

Moreover, certain states have experienced significant annual house price appreciation. Vermont leads with a 13.4% increase, followed by West Virginia at 12.3%, Rhode Island at 10.1%, and Delaware at 10%. Recognizing these state-specific trends can offer valuable insights for potential buyers navigating the market.

By considering both national and regional data, as well as understanding state-specific variations, buyers can better strategize their approach to homebuying in the current market landscape.

How is Inflation Behaving in the U.S.?

Inflation in the United States shows signs of moderating, as evidenced by key economic indicators. Here’s a closer look at what these signals tell us:

PCE Price Index Insights

The core Personal Consumption Expenditure (PCE) Price Index is a crucial measure, frequently referred to by policymakers as it omits the instability of food and energy prices. As of July 2024, this index registered a 0.2% increase from the previous month and a 2.5% rise compared to the prior year. A significant detail is that while goods prices remained constant, the cost of services saw a modest uptick of 0.2% monthly and 3.7% year-over-year.

Consumer Price Index (CPI) Trends

Another vital gauge, the Consumer Price Index (CPI), also exhibited a 0.2% rise in July, reversing a 0.1% decline in June. The year-over-year growth rate was 2.9%, registering the smallest 12-month increase since early 2021, signifying a slowdown in inflation pressure. The core CPI, which similarly strips out food and energy costs, showed a slightly higher monthly increase of 0.2% in July, compared to June’s figure of 0.1%.

Energy Prices and Shelter Costs

Interestingly, energy prices remained unchanged in July, following decreases in the preceding months. This stability contributed to a steady inflation landscape. However, an essential point to note is that shelter costs played a predominant role in the overall CPI increase, accounting for almost 90% of the rise in both the headline and core index.

In summary, the recent data indicates a tempered inflation environment in the U.S., with stable goods pricing and slight increases in service costs. The PCE Price Index and CPI provide evidence of low but steady inflation, highlighting shelter prices as a central inflation driver.

Regional Variations

Market conditions vary across different regions. For instance, cities like Tampa, Denver, Phoenix, Dallas, and San Francisco have seen increased home listings, providing buyers with more choices and reducing competition. Conversely, areas such as Chicago, Cleveland, New York, Detroit, and Boston have more constrained listings, resulting in quicker price gains. (Barrons) Understanding regional trends can help buyers navigate the market more effectively.

Implications for Buyers and Sellers

• For Buyers: The current market offers more options due to increased listings in certain areas. However, affordability remains a concern as home prices continue to rise, albeit at a slower pace. Prospective buyers can explore how mortgage rates and loan sizes impact affordability to make informed decisions.
• For Sellers: While demand remains strong, especially in regions with constrained listings, pricing strategies should be approached with caution. Overpricing may deter potential buyers, particularly as affordability challenges persist.

Current Trends in Mortgage Delinquencies and Foreclosures in the U.S.

The mortgage delinquency landscape in the U.S. Is undergoing some interesting shifts. As of the second quarter of 2024, approximately 3.97% of all outstanding mortgage debt was experiencing some form of delinquency. This marks a slight increase from the previous quarter, up by three basis points, and a notable rise of 60 basis points compared to the same period last year.

Delinquency Breakdown

• Short-term Delinquencies (30+ days): There was a marginal increase, moving up just one basis point from 2.25% in the first quarter to 2.26% in the second quarter of 2024. When compared year-over-year, these delinquencies have grown by 51 basis points.
• Foreclosures: The rate of loans in foreclosure saw a minor decline, reducing from 0.46% in the first quarter to 0.43% in the second quarter. This marks a 10-point decrease compared to the same time last year.

Seriously Delinquent Loans

• 90+ Days Past Due or in Foreclosure: One of the few segments to see an increase was VA loans, which climbed from 2.01% to 2.07% between the first and second quarters of 2024. However, this remains lower than the second quarter of 2023, which stood at 2.15%.
• The overall share of these serious delinquencies dipped slightly from 1.44% in the first quarter to 1.43% in the second quarter of 2024, marking a reduction of 18 basis points from the previous year.

Loan Type-Specific Trends

• Conventional Loans: These loans saw a decline in the serious delinquency rate from 1.06% to 1.04% quarterly, and a significant drop from 1.61% compared to the previous year.
• FHA Loans: A minor decrease was noted, with rates falling from 3.18% to 3.17% between the first two quarters of 2024, and a larger decrease from 3.71% since the second quarter of 2023.

While there is a slight uptick in early-stage delinquencies, serious delinquency rates continue to trend downward. This suggests that many homeowners are successfully managing short-term financial difficulties, preventing their situations from escalating into foreclosures.

Looking Ahead

Economists anticipate that house price growth will continue to slow, with increased home listings providing buyers with more choices and reducing competition. The National Association of Realtors forecasts a more moderate home price increase of 1.8% for 2025, attributing this to additional inventory and increased homebuilding activities. (Barrons)

Despite the cooling labor market, the outlook for the U.S. housing market suggests a soft landing, with economic growth continuing at a slower pace. Mortgage Rates are expected to decline, although they are likely to remain above 6% by year-end. This decline should support housing demand, yet any boost in home sales might be limited due to modest affordability improvements.

Supply Constraints remain a significant factor, as the housing inventory struggles to gain momentum. The “rate lock effect” is keeping many homeowners from listing their properties, and unless mortgage rates fall by a full percentage point or more, a substantial increase in existing home listings is unlikely.

As a result, Home Sales are expected to remain muted through 2024 and 2025. However, the tight supply combined with steady demand is predicted to maintain upward pressure on home prices, leading to continued but modest appreciation over the next couple of years.

When it comes to Mortgage Origination Volumes, the forecast is for modest growth. Purchase mortgage origination is expected to grow slightly, with a small boost in refinance originations due to anticipated lower mortgage rates. Overall, total origination volume is projected to see a modest increase in 2024 and 2025.

Current Performance of the U.S. Economy and Indicators of a Soft Landing

The U.S. economy is in a phase of expansion, albeit at a slower pace than before. This moderated growth aligns with expectations for a “soft landing,” where the economy stabilizes rather than experiences a severe downturn.

Labor Market Trends:

• The employment landscape is showing signs of cooling off.
• Unemployment rates have ticked upward slightly.
• There is a noticeable slowdown in job creation.

Inflation and Price Stability:

• Inflationary pressures are gradually decreasing.
• Consumer price growth is on a trajectory towards the 2% target.
• This trend supports the Federal Reserve’s goals of achieving maximum employment and ensuring price stability.

These shifts indicate a balanced economic adjustment, suggesting that the economy is gently leveling off without drastic disruptions.

What is the Overall Outlook for the U.S. Economy, Including Economic Growth and Inflation Expectations?

The current outlook for the U.S. Economy is cautiously optimistic, with expectations of a smooth transition despite a slowdown. Economic growth is projected to persist, but at a more moderated pace than in previous periods. Inflation is anticipated to ease, aligning with predictions for a gradual decrease.

In terms of interest rates, the conversation is expected to center around the timing and extent of any future rate cuts. This conversation may have more immediate effects on interest trends than formal policy shifts. Although some fluctuations are anticipated in response to policy announcements, mortgage rates are predicted to continue declining, yet likely to stay above 6% by the end of the year.

Overall, while there may be some financial market volatility, the economic forecast suggests manageable inflation and a steady growth trajectory, fostering a hopeful outlook for a soft economic landing.