Q4 Housing market trends and 2024 insights

Although mortgage rates are declining, they haven’t moved significantly to ease the “lock-in” effect. In other words, homeowners who are sitting on incredibly low mortgage rates, which may be between 3% and 4%, if not lower, are reluctant to sell because they don’t want to trade their current rate for a higher one.

“That group will need to see a continued drop in rates before they feel it’s a more favorable rate environment,” says Hummel.

First-time homebuyers are more likely to be more active in the fourth quarter, because they’re not feeling the same lock-in effect as existing homeowners.

“They may be more prone to take advantage of this rate environment that seems to be slowly drifting down,” says Hummel.

Less turnover is contributing to what has been a persistent undersupply of homes for sale. However, despite the market’s struggle with the “lock-in” effect, unsold existing home figures have improved by 0.7% from the previous month to 1.35 million at the end of August, or the equivalent of 4.2 month’s supply at the current monthly sales pace, according to NAR.⁴ And inventory remains below the five to six months considered to be a healthy level for a balanced market.

• On a positive note, new data shows a spike in the sale of starter homes. According to a new report from Redfin, pending sales of starter homes jumped 10.2% year-over-year in July to the highest level since October 2022.⁵ That’s good news for first-time buyers who are looking to buy at the lower-price end of the market.
• New home construction also shows signs of improving. Single-family housing starts hit a seasonally adjusted annual rate of 992,000 in August, up 15.8% from July’s revised figure after five straight months of decline, according to U.S. Census data. Permits for single-family homes, a leading indicator of new construction, also rebounded 2.8% on the month to 967,000 annualized.⁶ “There are a lot of people taking advantage of working with builders out there, and quite frankly, that's what's fueling the inflow of new inventory,” says Hummel.

A common question buyers wrestle with is whether now is the right time to buy. As always, timing the market to get the optimal value is incredibly difficult. Even if mortgage rates do fall further in the second half of 2025, it’s hard to predict whether home prices will increase, decrease or stay the same.

“People are feeling more encouraged that they see rates drifting down,” Hummel says, noting that at the same time, sentiment is mixed, because potential buyers are hearing about future rate cuts. Some are therefore wondering if they’ll be in a better position if they wait to make a move.

“There are people who have already taken advantage of the drop in rates, and there's probably some who are still in the wait-and-see camp,” he adds.

Encouraging your clients to engage with a U.S. Bank mortgage loan officer early in the process, regardless of real estate market conditions, can help them understand their financial options, as well as set realistic goals and a budget.

It’s important to look at housing market trends in the context of the broader economy. Despite recent weakness in single-family home sales, many homebuyers are in a strong financial position. According to the Bureau of Labor Statistics, the national unemployment rate remained strong in August at 4.2% (up 0.4% from a year earlier), while annual wage growth increased 3.8%.⁷

History clearly shows that there is a path to homeownership across all market cycles and in all interest rate environments.

• In the current environment, loan officers are educating homebuyers on programs and solutions that can help to bridge the gap on affordability.
  
• For first-time homebuyers in particular, there is more focus on state programs that offer subsidized interest rates or down payment assistance programs.

There's an element of education needed, especially with that first-time homebuyer segment, and U.S. Bank MLOs across the country take a comprehensive educational and consultative approach with borrowers.

“We’ve always done that, but I think now more than ever, that becomes really critical because of the challenges in the homebuying market,” says Hummel. “There are a lot of sources to get information, but having a trusted advisor in your mortgage loan officer aids your ability to make really good decisions when the time is right.”