Signs of a Nascent Housing Market Recovery Emerge in November

 By Odeta Kushi

Key Points:

• Despite an increase in mortgage rates, leading indicators of sales point to a modest pickup in sales activity in November.
  
  
• Inventory turnover has steadily increased to reach 0.95 percent as of October 2024 —that’s 95 in every 10,000 existing homes for sale.
  
  
• The recent increase in inventory helps to coax some potential buyers off the sidelines because they have more options to choose from.

 

The seasonally adjusted annualized pace of existing-home sales in 2024 has remained below 4 million for five consecutive months, a statistical feat unmatched since the late 1990s. Put another way, the re-sale housing market hasn’t been this stagnant since Bill Clinton was president. 

Existing-home sales have struggled under the weight of higher mortgage rates and corresponding affordability challenges, coupled with a limited supply of homes for sale. For most potential buyers during this period, even if you find a home for sale, chances are you can’t afford it. However, November data brings some cautiously optimistic news. 

According to our Existing-Home Sales Outlook Report, existing-home sales are expected to increase 1.2 percent in November compared to one month ago. Other sources indicate a similarly positive trend. Average seasonally adjusted purchase mortgage applications, a leading indicator of future sales, increased nearly 3 percent compared with October. Pending home sales, another forward-looking indicator of sales based on contract signings, increased by 2 percent in the month of October. Because a home goes under contract a month or two before it is sold, pending home sales indicate a potential uptick in sales in November. These are positive signs during a month when mortgage rates moved higher. So, what could be driving the increase in activity?

 

“The journey back to a normal housing market should accelerate in 2025. You can’t buy what’s not for sale – but the shelves are starting to be restocked.”

More Inventory, More Sales

 

According to our analysis, the total inventory of existing homes for sale relative to the total number of households, or “inventory turnover,” has historically averaged about 2.2 percent – or 220 homes per 10,000 are on the market at any given time. In February 2022, existing-home inventory turnover hit a series low of 0.75 percent. Inventory turnover has steadily increased to 0.95 percent as of October 2024 -- that’s 95 of every 10,000 homes up for sale. New-home inventory has also increased during this time, bringing the total inventory for the housing market (new and existing combined) to 1.3 percent, which is still below the historical average of 2.5 percent but an improvement from earlier this year. From an affordability perspective, our First American Data & Analytics House Price Index(opens in a new tab/window) is showing that nominal house price appreciation has slowed alongside higher inventory levels. While inventory is far from “normal,” the progress is welcome news for potential home buyers and existing homeowners alike. 

 

 

Importantly, more supply gives potential buyers more choices. In the housing market, the seller and the buyer are, in many cases, the same – the existing homeowner. To buy a new home, you have to sell the home you already own, and then find a home to purchase. But, not just any home – one that you like better. The fewer homes there are for sale, the harder it becomes to find something better than what you already have.   

Sellers face a prisoner’s dilemma, a situation in which individuals don’t cooperate with each other, even though it seems in their best interest to do so. If sellers all chose to sell, they would all benefit as buyers because they would increase the inventory of homes available and alleviate the supply shortage. However, the risk of selling when others don’t in a market with a shortage of inventory keeps many existing homeowners from selling altogether. The recent increase in inventory helps to coax some homeowners to sell because they have more options to choose from as a buyer.

 

Is the Good News Here to Stay?

 

The last two years have been very challenging years in the housing market. The good news is that recent data indicates that the worst might be behind us. Inventory of existing and new homes has been trending higher, the consensus industry expectation is that mortgage rates will drift modestly lower next year, and there remains significant pent-up demand for homes from first-time home buyers and repeat buyers alike. Consider that the pre-pandemic, five-year average pace of existing-home sales was 5.4 million (SAAR). If you calculate the average annual pace of sales from 2022 through 2024, we’re cumulatively approximately 3 million sales short of the pre-pandemic normal – that’s a lot of missing sellers and buyers that are waiting to jump into the market. While the mortgage rate lock-in effect will prevent a full recovery, the journey back to a normal housing market should accelerate in 2025. You can’t buy what’s not for sale – but the shelves are starting to be restocked.

 

November 2024 Existing-Home Sales Outlook Highlights

For the month of November,  First American updated its Existing-Home Sales Outlook Report to show that:

• Existing-home sales for November are expected to increase 1.2 percent from October’s pace of sales, but decrease 1.6 percent compared with the predicted pace of sales a year ago.
  
  
• The largest contributors to the projected monthly increase in existing-home sales are an easing of the rate lock-in effect as measured by the lagged* spread between the prevailing market mortgage rate and the average rate for all outstanding mortgages (+0.6 percentage points), positive economic growth (+0.3 percentage points), and an easing of credit conditions (+0.2 percentage points).

*The spread is incorporated with a two-month lag in the Existing-Home Sales Outlook model.

 

Methodology

Our Existing-Home Sales Outlook Report ‘nowcasts(opens in a new tab/window)’ existing-home sales, which include single-family homes, townhomes, condominiums, and co-ops on a seasonally adjusted annualized rate based on the historical relationship between existing-home sales, U.S. demographic trends, house-buying power, and the prevailing financial and economic conditions, as well as momentum, a weight assigned to past values. Please note that the Existing-Home Sales Outlook Report is based on assumptions about demographic, economic and financial conditions. Actual values may differ from those projected. Recent existing-home sales estimates are subject to revision to reflect the most up-to-date information available on the economy, housing market and financial conditions.

  First American Data & Analytics

Starter Home Prices See Largest Increase

 By Jennifer Warner

Florida starter home prices have jumped since 2018, with rising rates and investor competition making it more difficult for first-time buyers.

ORLANDO, Fla. — The deck is stacked against typical Floridians trying to get into their first home in today’s market. Price increases, high interest rates and competition from investors have edged people out of what is considered a starter home, changing the profile of a first-time home buyer significantly as a result.

How did we get here?

After the Great Financial Crisis in 2008, Florida’s home prices began recovering in 2012 and have made modest but steady gains over the next eight years. The median price for all property types in Florida in 2019, the last year before the pandemic upended the housing market, was $240,000. Between 2012 and 2019, home prices grew by 9%. Given how low prices were to start, that ending place was high relative to history but in line with affordable limits for many Floridians. Also, interest rates were stable and relatively low, putting the monthly payment for a typical mortgage under or around $1,000 per month for the median priced home.

Price increases for homes in Florida have undergone significant restructuring during and post-pandemic. In the four years since Covid hit, prices have continued to climb another 58% to a median sale price of $420,000 (as of 12/5/2024 using October 2024 numbers). Combine that with higher borrowing costs, and the typical payment for a median priced home exceeds $2,000 today — and that’s just principal and interest!

Price tier differences

We know there are nuances within price tiers that are important to consider, particularly when considering a way to enter the market. We took a look at sale prices for all property types, we created “starter home”, “mid-range home” and “higher-priced home” groups based on percentiles. For example, “starter homes” is the bottom 40%, mid-range homes is the middle 20%, and higher-priced homes is the top 40%

From 2018 through October 2024, the average price for a “starter home” has nearly doubled, increasing by 82%, going from $128,000 to $233,000 in under six years. This has pushed up the entry point for a first-time homebuyer significantly, making it more difficult to make the initial purchase of a home. Mid-range and higher–priced homes certainly moved up too, at 67% and 74% respectively. However, for those who already own a home, the immense equity gained during this time helps offset those increases when trading up.

Impact on first-time buyers

What this means is the barrier to entry has increased for first-time home buyers in Florida. Just coming up with a down payment is significantly harder now. A 5% down payment on a starter home in 2018 was $6,400, whereas the same percent down now translates to $11,650. Factor in interest rates that are nearly double what they were in 2018, and the purchasing power of today’s first-time buyer is greatly diminished. The result — fewer first-time homebuyers are in today’s market. According to the National Association of Realtors® (NAR), in 2023, first-time homebuyers in Florida made up just 20% of all buyers, compared to 32% nationwide.

Those who are able to buy look a lot different than first-time buyers of previous generations. According to NAR's 2024 Profile of Home Buyers and Sellers Report, they are older, wealthier and using different sources of income for both purchase and down payment. These buyers are increasingly using stocks as sources of down payment in addition to the Bank of Mom and Dad, as well as good old savings.

What’s a Realtor® to do?

This may mean re-thinking what a first-time buyer is and what they want. Since today's buyers often have more financial resources than previous generations, and starter homes are increasingly costly, consider showcasing "trade-up" properties as a first option. The price difference may be minimal compared to starter homes.

These buyers may be more established in their lives and careers. They may not have families but will likely have pets, so considering amenities that cater to the furry family members will be beneficial. Take some time to review demographic trends in your area, breaking down sales by price tier to get a sense of what is trading in your area, and chat with your peers about who is in the market today. Staying on top of trends (beyond counter material) will set you apart and help you get ahead of the continually changing world of real estate.

Jennifer Warner is an economist and Director of Economic Development

© 2024 Florida Realtors®

Real Estate Business Looking Positive in 2025

 Recent mortgage rate forecasts have been optimistic and some economists expect the number of homes sold to reach 5.4M this year, an increase of 14% YoY.

WASHINGTON — Affordability and inventory challenges in the real estate market have been continuous headwinds for professionals, but recent 2025 forecasts have been positive and could signal positive years to come.

Recent mortgage rate forecasts have been optimistic, and economists at Fannie Mae project the volume of home sales will rebound. Forecasts from Fannie Mae, the Mortgage Bankers Association, and the National Association of Realtors (NAR) expect the number of homes sold to be 5.4 million this year, a 14% increase year-over-year.

Additionally, following an election, the number of existing home sales rose nine times out of 11. Those real estate professionals that remain in the industry will see less competition, as NAR expects 124,000 Realtors to leave the business by the end of 2025, an 8% drop in the number of active Realtors.

Firms that leverage the latest technology advancements could harness greater efficiency and productivity. Tech-savvy agents can edit videos quicker, create engaging copy faster, and focus on what really matters.

The challenges of the last few years have helped agents be more prepared to answer questions about transactions, come back from disappointments and seek out new opportunities.

Source: Inman (11/14/24) Burgess, Jimmy

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