If you feel like home prices continue to break records, that’s because they do. In the four weeks ending May 19, the median home price reached a “record $387,600.” in accordance with Redfin; this is 4% more than in the previous year.
But mortgage rates fall. The weekly average of the 30-year fixed rate is now 6.94%. It fell below 7% for the first time in more than a month; and just a few weeks earlier, mortgage rates hit a five-month high of 7.22%. However, the average monthly home payment (before the latest Freddie Mac mortgage rate change) I’m reading) is $2,854, about $20 “less than the all-time high in April,” according to Redfin. At least it’s not higher than April’s record high, right?
Still, Redfin CEO Glenn Kelman is optimistic about the second half of 2024. “We think the housing market will improve in the next half of the year,” he said in Interview yesterday from CNBC. The latest inflation data was good, Kelman said, and at the time we were approaching mortgage rates below 7%, which is a “milestone” in the housing world that we have officially reached.
But that will depend on lower interest rates, which he said has already been priced into much of the mortgage rate market. or even negative growth in the housing market, but we basically bottomed out in the first quarter of 2024, and I expect the housing market to be a little better for the rest of the year,” Kelman said. At one point, some were envisioning three interest rate cuts this year, but as inflation has proven more resilient than expected, that ideal has become less likely. And Fed officials I insist on patience for this first reduction in interest rates.
Kelman seems to believe that inflation is at a more reasonable point, that the mortgage rate market has stabilized and demand is strong. Not to mention, many potential home buyers have put their purchase on hold and don’t want to do it anymore.
Rent matters too. They are a major component of inflation and the reason mortgage rates are not falling further, Kelman said. “The housing market is in a complex spiral right now where home prices and rents are driving inflation, which is driving up mortgage rates, and that’s keeping the market somewhat locked in,” he explained.
Last year, sales of existing homes fell to their lowest level in nearly three decades, largely due to the lock-in effect, which refers to homeowners who are reluctant to sell their homes for fear of losing their below-market mortgage rates. In April of this year they fell by almost 2% on a monthly and yearly basis, likely because some people are still holding on to their homes and affordability has worsened. In an interview earlier this month, Kelman said: “Four million people will move this year; “This is the lowest we’ve seen in many, many years, and that’s only because interest rates have been consistently high.”
And in some metropolitan areas, rents are falling, so he expects that to be reflected in future inflation rates (the Sun Belt is seeing some of biggest rent reduction in the country). Either way, he doesn’t see rents going through the roof with how many apartment buildings hit the market last year and this year. However, nationally, asking rents rose 1% last month, the first increase in a year, according to Redfin.
Despite his optimism, however, he’s not ready to “have a party here and drink a ton of champagne,” Kelman said. “It’s just a little better, a little better—and that’s worth celebrating.”