Recent findings underscore the current immobility of the real estate sector.
The recent data from the real estate sector highlights the significant halt in the housing market in 2024, as Americans grappled with a detrimental mix of sky-high property prices and inflated mortgage rates, leading to one of the least affordable housing markets in recent decades. A rate reduction by the Federal Reserve this month has ignited anticipations that the rate-sensitive housing industry may soon witness a revitalizing surge.
Echoing this sentiment, Chen Zhao, Redfin's economic research lead, remarked, "The housing market in 2024 has essentially been put on ice." Despite similar observations in 2023, there was a lingering belief that things couldn't deteriorate further. Alas, 2024 proved to be disappointing in terms of the housing sector.
Approximately 25 out of every 1,000 homes were sold during the first eight months of the year, indicating a 37% decrease in sales compared to the same period in 2021, which witnessed a surge in home-buying activity due to the pandemic. This figure also represents a 31% decrease in sales compared to the same period in 2019.
Zhao argues that a market where 30 to 40 homes out of every 1,000 are sold indicates a healthier housing landscape.
One of the primary reasons for the lower home sales figures in 2024 is the limited inventory of available properties. Only 32 homes out of every 1,000 were listed for sale during the first eight months of the year, representing the lowest level since at least 2012, according to Redfin.
Location Matters
Some areas have experienced a more severe slowdown than others. Homes in suburban and rural areas were purchased slightly more frequently than urban dwellings, according to Redfin's data.
Geographical factors also play a significant role. Seven of the ten metropolitan areas with the lowest turnover rates in 2024 are located in California. Los Angeles was the city with the lowest turnover rate, with only 15 homes out of every 1,000 being sold - a 32% decrease compared to the same period in 2019.
"In cities like Los Angeles, salaries haven't kept pace with housing prices," explained Jeremiah Vancans, a Los Angeles-based Realtor affiliated with Compass. "There isn't much new construction inventory hitting the market, and when it does, it's not available at affordable prices."
Vancans further attributed the slowdown in Los Angeles to the decline in hiring in the entertainment industry, one of the city's major employers. Vancans estimated that the lingering effects of the 2023 writers' and actors' strikes, along with disruptions caused by streaming services, have negatively impacted employment opportunities for entertainment professionals.
Boston was the second-slowest market and experienced a nearly 38% decrease in home sales compared to five years ago.
Austin, Texas, which has gained prominence in recent years as a major tech hub, recorded the most significant decrease in home sales of all major metropolitan areas analyzed by Redfin over the past five years. Austin sold 30 homes for every 1,000 homes this year, only half of the sales rate in 2019.
Homebuyers in Sun Belt cities and areas within commuting distance to New York City had the broadest range of options. More homes were sold in Phoenix than any other metropolitan area, according to Redfin.
"We've been constructing a lot of new homes, providing a larger selection of homes for buyers to choose from," said Patrick Chamberlin, a Phoenix-based Realtor. "Compared to other parts of the country, homes in Phoenix are more reasonably priced."
Nevertheless, Chamberlin admitted that even in Phoenix, home sales have slowed significantly compared to the pandemic years of 2020 and 2021.
"We're still far below our usual levels from the last couple of years," he said. "It still feels stagnant."
Stimulating a Stagnant Housing Market
Mortgage rates have been steadily falling in anticipation of further interest rate reductions from the Fed, with the average 30-year fixed mortgage rate dropping to 6.08% in the week ended September 26, according to Freddie Mac. While this is a substantial decrease from the recent peak of 7.79% reached in the fall of 2023, it remains higher than typical mortgage rates during the nearly 14-year period between 2008 and 2022.
Zhao attributed the historically sluggish home sales in 2024 partly to the "rate lock-in effect."
Americans who secured lower mortgage rates prior to 2024 have been reluctant or unable to list their homes for sale due to the presumed necessity of purchasing a new home at a considerably higher interest rate. According to the Consumer Financial Protection Bureau, nearly 60% of the 50.8 million active mortgages have interest rates below 4%.
"There has been little motivation to sell homes," Zhao said. "The limited inventory on the market has played a significant role in there being so little turnover."
A shortage of new home construction also contributed to America's slow housing market. Experts estimate that the US needs to construct over 2 million homes to meet growing demand. This scarcity has helped push housing prices to all-time highs. The median sales price of an existing home in August was $416,700 - the 14th consecutive month of year-over-year price increases, according to the National Association of Realtors.
"Reachin' a balanced housing market from here on out seems like a massive challenge," Zhao mentioned. "I believe the solution lies in an substantial influx of property supply, either through new building projects or finding ways to access the homes of current property owners."
"Prepare yourself for a long haul, around five to ten years, until you notice a familiar tune in the housing market again," she continued.
The sluggish housing market in 2024 has had a ripple effect on the wider economy, with reduced consumer spending and business investment due to the unaffordability of homes. The high property costs and interest rates have made it difficult for many consumers to save for other business ventures or investments.
As Zhao further analyses, the housing market slowdown has impacted various sectors of the business community, making it challenging for small businesses that rely on residential real estate development and construction for growth. Prospective homebuyers, often first-time buyers, have also delayed their plans to start businesses, waiting for more favorable market conditions.
