The real estate market has been historically slow since the Covid-era boom of 2020 and 2021. With that said, there’s good reason for optimism moving forward in 2024.
Existing home sales look to have hit the bottom, home builders are optimistic about the future, and single-family construction appears to be on the up-tick!
December’s Existing Home Sales Likely at “Bottom”
Home sales and construction slumped in December, but buyers and builders have reasons to be optimistic about the housing market this year.
Existing Home Sales fell 1% from November to December to a 3.78-million-unit annualized pace. That comes in below estimates of an unchanged reading per the National Association of REALTORS® (NAR). Sales were also 6.2% lower than they were in December 2022.
What’s the bottom line? This report measured closings on existing homes in December and likely reflects people shopping for homes in October and November, when rates peaked.
On that note, the National Association of Realtors Chief Economist, Lawrence Yun, said, “The latest month’s sales look to be the bottom before inevitably turning higher in the new year. Mortgage rates are meaningfully lower compared to just two months ago, and more inventory is expected to appear on the market in upcoming months.”
More supply is certainly needed, as there were just 1 million homes available for sale at the end of December. This was down from 1.13 million at the end of November, and below healthy levels at just a 3.2 months’ supply of homes at the current sales pace.
Home Builders Optimistic About 2024
Confidence among home builders rose for the second straight month in January as falling mortgage rates have encouraged some buyers to resume their home search.
The National Association of Home Builders (NAHB) Housing Market Index climbed seven points to 44. While this is still in contraction territory below the key breakeven level of 50, the reversal marks a positive sign heading into the spring buying season.
All three index components moved higher this month. Current sales conditions rose seven points to 48, while future sales expectations surged twelve points to 57, moving into positive territory for the first time since August. Buyer traffic was also up five points to 29.
What’s the bottom line? NAHB Chair Alicia Huey noted that, “Lower interest rates improved housing affordability conditions this past month, bringing some buyers back into the market.” Plus, 31% of builders surveyed reported that they’re still reducing prices to encourage sales, providing even more opportunities for buyers right now.
“Solid Showing” for Single-family Construction
Housing Starts fell for the first time in four months in December, down 4.3% from November.
While single-family Starts also saw a downtick from November, they still had a “solid showing” per the NAHB as they surpassed the million mark (1.027 million) for the second straight month. This reflects the number of single-family homes that would be built throughout the year if construction took place at the same rate in every month as it did in December.
Building Permits, which are an indication of future construction, were up 1.9% from November to December, with permits for single-family homes reaching their highest level in a year.
What’s the bottom line? “Mortgage rates steadily fell below 7% in December, and lower rates combined with a lack of existing inventory in most markets helped to keep single-family production above a one million-unit annual pace,” explained NAHB Chair Alicia Huey.
“And the fact that our latest surveys showed a big increase in builder confidence is an indicator that we can expect housing starts to improve in the coming months.”
A boost in supply will be welcome news for buyers around the country who have struggled with low inventory, though there is still a long way to go to meet the level of demand that exists among buyers.
When we consider the pace of completed homes that will be coming to market (around 1.57 million homes annualized) and subtract roughly 100,000 homes that need to be replaced every year due to aging, we’re well below demand as measured by household formations that are trending at 1.9 million.
More demand than supply will continue to be supportive of home values, especially when we reach the busier spring homebuying season.
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