The start to 2024 may have been a slow one for homebuyers waiting for potential interest rate reductions, but that doesn’t mean the housing market has screeched to a halt. Buyers and sellers can still feel optimistic about some positive trends in the back half of the year.
What is demand like for homebuyers?
In the last two years, we’ve come down from the high in terms of demand and volume in the housing market. Overall, demand is flat year-over-year, but as expected, we are seeing it trend upward in the summer months. Because rates seem to be remaining at stubbornly high levels, homebuyers are adjusting to 6-8% interest rates. Many buyers may also feel as though they have waited long enough and want to jump into the market regardless. A recent survey found over half of millennials and 40% of Gen Z respondents said they feel right now is a good time to buy.
Another important consideration when it comes to demand is elevated housing costs. For many buyers, prices are simply too high to enter the market. More than three-quarters of Americans can't afford the median price of a new home at $500,000, and half can't afford a $250,000 home. If supply increases, home prices may come down a bit. One positive sign is that the number of new single-family homes for sale was up nearly 12% year-over-year in April and has been trending upward.
Where is the housing market heading?
Overall, I anticipate rates coming down — but very slowly. When rate reductions eventually happen, they may fuel a significant amount of excitement and activity in the market. I anticipate consumer demand will be stronger in the second half of the year and will continue to improve as the year goes on. The fourth quarter of the year, which is traditionally a slower homebuying season, may see significant strength if interest rates are cut later in the year.
When rate reductions eventually happen, they may fuel a significant amount of excitement and activity in the market.
Navigating interest rates
While I understand the desire to secure a low interest rate, my advice is start looking now and buy when you’re ready. For context, if you look at the 30-year fixed-rate mortgage interest rate since 1976, it averages out to 7.68% based on industry data. Meanwhile the Federal National Mortgage Association, known as Fannie Mae, forecasts the 30-year rate will slowly decline but remain above 6% through 2025.
If you are able to afford a home and aren’t facing any hurdles with qualifying for a loan, staying glued to interest rate changes would slow down your homebuying timeline. As I noted earlier this year, you may have the opportunity to refinance after rates fall. Additionally, with home prices continuing to escalate, buying now and refinancing later allows you to lock in your home price and start building equity. If you’ve recently purchased a home and are thinking about a refinance, consider familiarizing yourself with some common mistakes to avoid before starting the process.
Because demand may spike in response to changes in interest rates, it’s best to be prepared. Know the area you’re looking to buy in, put together a spending plan and check with at least two to four mortgage lenders for pre-approval — be on the hunt for someone who can deliver a verified pre-approval letter, like Ally Home.
If you’re looking for somewhere to start, you can search for homes for sale with ComeHome. Current owners can claim their home to track estimated value and see recent listings in their neighborhood.
New rules from the National Association of Realtors settlement
Previously, the National Association of Realtors required sellers to pay for their buyer’s agent fees, usually totaling around 6% of a home’s sale price. With the ruling, it’s expected that home sellers will no longer be responsible for paying broker commissions. But for the time being, the real-world impact of the settlement will only be known after some time has passed.
I anticipate that it may improve transparency and allow for more negotiation with agents on their commissions or other fees. There may also be an increase in realtors offering reduced-price services for buyers who are willing to do their own research and viewings, with access to homes through lockboxes as opposed to agent-guided tours. First-time homebuyers may be concerned that they will now need to pay agents, but I don’t foresee the buyer necessarily having to pay out of pocket. I believe agent compensation will be able to be negotiated into the sale price of the home at either a flat fee or certain percentage.
Follow your own schedule
Accomplishing major milestones can sometimes feel like a race — but remember to move forward at a pace that works for you and your finances. You don’t need to rush into a home purchase, but once you’re prepared and financially ready, pursuing a home can be especially satisfying.
