National Housing Market Outlook

7% Rates Are Keeping the Housing Market in Check

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Alex Thomas

March 28, 2024

Key takeaways

  • Mortgage rates remain stubbornly high at 7% as the economy stays strong and the Fed hesitates to cut interest rates.
  • Resale inventory is inching higher as the lock-in effect (when homeowners are “locked in” and unwilling to give up their sub-6% mortgage rates) slowly loosens.
  • Demand is sluggish for this time of year as affordability issues persist.
  • Builders still have the edge, but rising resale inventory could erode their advantage.

The inventory of existing homes for sale, while still near historic lows, has grown +2% since this time last year. The housing market is well past the peak lock-in days of early 2022, when 92% of borrowers had a rate below 6%.

As of 3Q23 (our most recent data), the share of borrowers with rates below 6% had fallen to 88%—and the actual number is likely closer to 85% today based on trends. Millions of borrowers are no longer locked in, which will only grow as rates stay high and homes take longer to sell.

The recent National Association of Realtors® (NAR) settlement may also increase resale inventory at the margin.

With standard agent commission fees of 6% eliminated, it should become cheaper for sellers to list their homes when the new rules take effect in July. Reduced transaction fees on home sales should spur incrementally more listings.

We think buyers are still likely to use agents going forward, but we expect commissions to become more cyclical and lower overall because of the new decision. We also expect the ranks of Realtors to thin out, as there are already around 50% more Realtors than homes for sale nationwide.

Builders still have the edge, but rising resale inventory could erode their advantage.

Builders thrive when resale supply is anemic since they can offer incentives that resellers struggle to compete with. Their success has propelled unsold new home inventory to near the highest level since 2008, and new homes now make up 31% of all unsold single-family inventory.

Elevated new home inventory is not an issue in most markets as long as resale inventory remains low. However, elevated new home inventory creates extra risk if resale inventory begins to rise. New home construction is still increasing, with both starts and permits at their highest levels in nearly two years.

The economy remains strong, which hinders the Fed’s mission to bring inflation back to target, suggesting rates may stay ‘higher for longer.’

Unemployment crept up in February to 3.9%, but jobless claims remain historically low, and the economy continues adding jobs at a steady clip. Immigration fuels much of this labor market expansion, as highlighted in our new  Burns US Demographics Insights and Strategies report. Strong job growth has been accompanied by falling gas prices and record-breaking stock market gains stoked by AI exuberance, all bolstering consumer sentiment.

But worryingly, 32% of small businesses expect to raise prices over the coming months, the highest share since 2022. Historically, this data point is a strong leading indicator of overall inflation. Data pointing to a potential reacceleration in inflation will surely spook Fed members, supporting the case for keeping rates higher for longer.

We monitor more than 300 macroeconomic and housing market indicators monthly in our US Housing Analysis and Forecast report, which is available to all clients and the best place to view our macro outlook. For more information, contact our Client Services team.

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About The Author

Alex Thomas photo
Alex Thomas
Senior Research Analyst, Macro
Alex assists our research team in tracking macro-level economic and housing trends and data. He also helps cover the fix-and-flip space.

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