As the 2024 year comes to an end, mortgage rates finish the year higher than where they started. We have been sounding the alarm and emphasizing the need for the Feds to take control of this housing affordability crisis which has stifled the housing market. We have highlighted that shelter costs make up as much as 80% of the Consumer Price Index as a measure of inflation. Despite this majority share attributed to shelter costs, the Feds have not expressed a sense of urgency in getting inflation under control. High mortgage rates resulted in the lock in effect of homeowners apprehensive to sell their homes to not give up their low fixed mortgage rates. This low inventory and high demand have caused home prices to spike, resulting in a housing affordability crisis. Americans are struggling and the dream of owning a home in 2024 was diminished. The demoralizing end to the mortgage rate of 2024 led to the re-projection of the rates to remain high through 2026 at over 6%. However, these projections are based on the current state of the market. An argument can be made that with the incoming Trump Administration, pro-economic growth policies will change course on the housing market projections.
Mortgage rates ended the 2024 year higher than where it started. The average 30-year mortgage rate was at 6.62% in January 2024 but ended the year at 6.85%. This marks the second straight week that it has gone up, jumping from 6.72% from last week’s reading.
Year 2024 is ending with the way that many homebuyers have been feeling throughout the year – discouraged. Homebuying and renting have been out of reach for many as Americans struggle to make ends meet. They are faced with decisions on how to pay for groceries, pay for shelter, and buy basic needs. Debt has risen for essential items. Housing inventory is low, and prices have continued to rise and remain high. Although the cost of living is higher, wages have remained stagnant. Discouraged homebuyers and renters ended the year still competing for far and few homes.
Housing affordability has been the most challenging among entry level homes. The reduced housing affordability has caused homebuyers to funnel at this entry level price point in a market with depleted inventory. As if that wasn’t enough, cash is king, and cash buyers have made it impossible for those needing home loans to compete.
Relief in housing affordability is not instant, but new housing construction may be a bit of a relief for some. This year it is reported that community new construction grew 5-10%. Builders have been buying mortgage rates down in the 5% range to promote sales. It’s worth it for homebuyers to look at new construction as a viable option.
The grim end to the 2024 housing market changed the projections over the next two years. A few months back, it was projected that mortgage rates would be in the 5% range. Now, rates are projected to remain over 6% through 2026. However, these projections are based on the current state of affairs. The Feds do not seem to care about finding a solution to the housing affordability crisis and restoring confidence once again in the housing market.
The projections do not consider the pro-economic growth agenda of the incoming Trump Administration. Inflation must be curbed with a combination of bold policies which include fiscal responsibility, curbing wasteful government spending, increasing wages, tax cuts, and innovation. The first Trump presidency is a proven record that housing can be affordable again. Trump has stated that he wants to lower interest rates. Mortgage rates throughout the first Trump presidency hovered consistently around 3%, a far cry from the high mortgage rates of the Biden presidency that reached levels over 7%. The first few months of the second Trump presidency will be telling on how the housing market will perform. If the first term was any indication, the economy would be reignited and a pro-growth agenda will rein in inflation, lower mortgage rates, and make housing affordable again.
References:
https://www.foxbusiness.com/economy/mortgage-rates-december-26-2024
December 26, 2024
By Sophia Georges
Copyright 2024 – Realsophy Real Estate, Sophia Georges
