Recent data shows that the US housing market is bouncing back, with January registering the largest month-to-month gain in contract signings since June 2020. The National Association of REALTORS® (NAR) reported that its Pending Home Sales Index rose 8.1% from December to January. The surge in sales is thought to be due to buyers rushing to take advantage of recently falling mortgage rates. This news is supported by the Commerce Department’s report that sales of newly built single-family homes rose 7.2% last month.
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Mortgage rates hit a peak in November, crossing the 7% threshold and more than doubling in comparison to the previous year. This led to a sharp drop in buyer interest. However, since the start of 2023, the 30-year fixed-rate mortgage has dialed back to the 6% range, currently standing at 6.5% as of last week, with fewer volatile fluctuations. NAR Chief Economist Lawrence Yun predicts that mortgage rates will average 6.1% this year and 5.4% in 2024. Yun states, “Buyers responded to better affordability from falling mortgage rates in December and January.”
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An improvement in the interest rate environment, coupled with recent job gains, is contributing to a more positive outlook for the housing market. Although home sales activity appears to be “bottoming out” in Q1 2023, an annual gain in home sales is not expected until 2024, says Yun. On an annual basis, contract signings are still down 24.1%, reflecting the fallout from the pandemic-fueled homebuying frenzy.
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While home prices are likely to remain stable in most parts of the country, there is expected to be a minor change in the national median home price. Yun suggests that the median existing-home price will moderate after rapid gains over the previous two years. The national median home price is predicted to be around $380,100 this year, falling 1.6% compared to the previous year. However, NAR forecasts that home prices will gain traction again next year, with a 3.1% jump to $391,800.
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NAR estimates a 1.3% increase in the median new-home price to $461,000 in 2023, followed by a 2.8% increase in 2024 to $474,000. This growth is attributed to higher costs for land and construction materials. All four major regions of the US posted monthly gains in contract signings in January, with the West seeing the largest increase, followed by the South. Yun explains that the West experienced an extra bump due to lower home prices, while gains in the South were due to stronger job growth.
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