The housing market appears to be turning a corner, offering frustrated buyers a renewed opportunity to enter after enduring a challenging period.
This shift comes after a tumultuous few years in the U.S. housing market, marked by home sales plummeting to their lowest level in 30 years in 2023 and mortgage rates reaching multi-decade highs.
However, buyers re-entering the market soon may find conditions more favorable than those in 2023.
“We think the housing market is going to improve over the next half of a year,” said Glenn Kelman, CEO of Redfin, in a recent interview. “Mostly, we hit rock bottom in the first quarter of 2024, and I would expect the housing market to do a little bit better through the rest of the year.”
Here are three signs that industry experts say indicate more favorable conditions for buyers:
1. Rising Inventory
More inventory is starting to flow into the housing market, which could help lower prices. For the past few years, a shortage of inventory has limited options and driven prices up for prospective home buyers.
Unsold housing inventory increased by 16% year-over-year in April, reaching 1.2 million units, according to the National Association of Realtors. While this is still below the desired inventory levels, it’s an improvement from 2023, when the “lock-in” effect kept sellers from listing their homes as they held on to lower mortgage rates secured in previous years.
Robert Reffkin, CEO of the real estate brokerage Compass, noted that buyers are beginning to withdraw from the market due to poor affordability conditions, which has helped to balance supply and demand. “We are now seeing more sellers than buyers,” Reffkin said in a recent CNBC interview.
2. Dropping Home Prices
Increasing inventory has the potential to lower home prices as supply and demand rebalance. House prices hit a record high in April, with the median U.S. home price reaching $387,600, according to Redfin data.
However, Reffkin pointed out that 34% of homes on the market saw a price drop in May, the highest percentage recorded in the past 10 years. Prices are also starting to fall in key metropolitan areas like Texas and Florida, which have seen significant new home construction, according to Redfin data.
“The boom is over, in part because many people have been priced out. Now, homes are sitting on the market and price growth is stagnating,” Redfin noted in a recent report.
3. Decreasing Mortgage Rates
The 30-year fixed mortgage rate has declined over the past six months. Borrowing costs for the most popular U.S. mortgage eased to 7.02% last week, down from a peak of 7.79% in late 2023, according to Freddie Mac data.
High mortgage rates have been a major issue in today’s housing market, deterring both buyers and sellers from making deals. However, mortgage rates could continue to decrease as markets gain confidence in upcoming Federal Reserve rate cuts, according to Kelman.
The Federal Reserve has indicated it won’t cut interest rates until it is confident that inflation is returning to 2%. But inflation now appears to be at a “reasonable” level, with consumer prices cooling to 3.4% in April, Kelman added.
Reffkin also expects mortgage rates to come down in the coming months. A drop to 5%-6% would significantly boost the housing market, but even a 6.5% 30-year mortgage rate would make the market “very strong,” he said.
“We feel reasonably good,” Kelman said about the housing market. “I just don’t want to have a party here and drink a bunch of champagne … it’s just a little bit better, and that’s worth noting.”
