Published March 14, 2024
Can We Expect a Spring Housing Market Boom in 2024?
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Several economic indicators signal positive momentum in 2024. Inflation, employment, and interest rates data suggest that the U.S. economy is bouncing back from the impact of the global pandemic. Now, with the arrival of the spring homebuying season, the question arises: will this optimistic outlook extend to the housing market?
Over the past year, both the housing markets in Austin and across the nation experienced a slowdown, with increased housing supply, declining prices, and cautious buyers ensuring that purchasing property in a climate of higher mortgage rates remained financially viable. Subsequently, the Austin market has transitioned to favoring buyers.
With its soaring online search popularity, influx of newcomers, and robust job market, the greater Austin, Texas area serves as a potential barometer for the wider U.S. housing market. This hypothesis will undergo scrutiny during the spring and summer sales period, traditionally when around 40% of existing home sales occur nationwide, according to the National Association of Realtors. Beyond offering sunnier skies, buying a home during these months enables families with school-age children to complete the entire process—from shopping to closing—before the new academic year begins.
Rates warming or cooling?
When considering the prospect of buying a home, the first question on everyone's mind typically revolves around current mortgage rates. This concern is understandable given the rollercoaster ride these rates have taken in recent years. Even a slight fluctuation in mortgage rates can result in significant changes to monthly payments, making it crucial to stay informed about rate trends.
The good news is that mortgage rates began a downward trajectory towards the end of 2023, extending into 2024. However, this trend shifted around the time of the January 31st meeting of the Federal Reserve Open Market Committee, which determines the federal funds rate that serves as a benchmark for many bank lending rates.
In an attempt to curb inflation, the Fed opted to keep rates unchanged in January and hinted at a similar stance in their upcoming March meeting. Although markets had anticipated a rate cut, the Fed's decision suggests otherwise, contributing to an uptick in mortgage rates at the start of February.
Despite this, most economists maintain the belief that the Fed will eventually lower rates later this year, potentially leading to a decline in mortgage rates. However, the timing of such adjustments remains uncertain, underscoring the importance of consulting with a knowledgeable local loan officer. Such professionals not only stay abreast of rate movements but also advise on optimal timing for capitalizing on favorable rates.
In essence, the sage advice persists: "Date the rate, marry the house." Even if current mortgage rates appear daunting, programs like a temporary buydown can offer temporary relief, making homeownership feasible. Furthermore, should mortgage rates decrease in the future, refinancing into a lower rate becomes a viable option.
Enough homes for every buyer
Typically, the next query for potential homebuyers—especially first-timers—after inquiring about mortgage rates is regarding home prices. However, before delving into that, let's examine a crucial aspect known as housing inventory.
For years, there's been a shortage of homes to meet the demand, a trend predating the pandemic. This scarcity can be frustrating for homebuyers, as it often leads to fierce competition, bidding wars, escalating prices, and disappointment for those who miss out.
The remedy to this housing inventory dilemma lies in two key factors: increased home construction and more homeowners listing their properties for sale. Fortunately, there's positive news on both fronts.
New Construction Homes
As reported by Kiplinger, there's been a notable uptick in permits for single-family home construction in recent months. This, combined with rising builder confidence, indicates a likelihood of an increase in home construction in the foreseeable future.
Although this surge in construction may not fully meet the existing demand, there's a noticeable trend towards the purchase of newly constructed homes. This pattern is anticipated to persist in the coming period.
Inventory Improves
Reducing mortgage rates might prompt some homeowners to consider selling, as their current mortgage rates may not be as compelling as they would be during periods of higher rates. According to Realtor.com, there has been a notable 7.9% increase in the number of homes available for sale on an average day, marking a significant improvement. In contrast, during similar periods in previous years, there was a double-digit percentage decline in available homes for sale.
In essence, the inventory of homes for sale in your local area might deviate from the national trend. This underscores the importance of collaborating with a local expert and being prepared to act swiftly upon finding a suitable property. Consult with your agent to learn about available programs which can enhance the impact of your offer.
A surge in available homes for sale could alleviate demand pressure, potentially reducing bidding wars and extending the time each home spends on the market. These factors are expected to help moderate home prices, leading us to the next point.
How Home Prices are Doing?
You might catch terms like "housing affordability" in the news or from economists, which essentially reflects the cost of owning a home. It boils down to two key factors: mortgage rates and home prices. When either rises, affording a home becomes tougher. And when both climb, it becomes especially challenging.
We discussed mortgage rate factors this spring, but in terms of home prices, they've been steadily increasing for a few years now. The low mortgage rates in 2021 and 2022 triggered a surge in homebuying, driving prices upwards. The limited availability of homes for sale during this period further fueled demand, causing prices to soar even higher.
In 2023, home prices continued to rise. The accompanying table illustrates the extent of this increase, highlighting a trend where prices typically rise alongside temperatures, particularly during the popular homebuying months of spring and summer.
Thanks to an increase in home construction and more homeowners willing to sell due to anticipated rate decreases this year, many economists are forecasting a slowdown in home price appreciation. Lawrence Yun, senior economist at the National Association of Realtors®, predicts a modest 1.4% increase in home prices this year.
However, as illustrated in the chart above, it's typical for home prices to rise in the spring and peak in the summer. Keep an eye out for the beginning of this price appreciation trend in the coming months. While median home prices may not see significant increases compared to a year ago, they are likely to follow this seasonal pattern.
In the Austin area, the recent uptick in the median sales price, marking the first year-over-year increase in 16 months, carries significant implications for both buyers and sellers. For sellers, this indicates a potentially favorable market environment, suggesting increasing demand and the potential for higher returns on their properties. It may encourage sellers to list their homes, anticipating better offers and faster transactions. For buyers, this trend could signal a shift towards a more competitive market, potentially leading to higher purchase prices and increased competition for available properties. As such, buyers may need to be prepared to act swiftly and decisively to secure desirable homes amid growing demand.
In summary, don't expect home prices to decrease this spring, so it's wise to devise a plan for financing your home purchase. Explore loan options to secure a favorable mortgage rate and take advantage of programs designed to assist with the down payment. Contrary to popular belief, you don't necessarily need to pay 20% of the purchase price upfront, especially with various down payment assistance programs available.
Median Home Price in Austin
Thankfully for buyers, the increased availability of homes on the market has led to a stabilization of home prices. In September, the median home price in Austin dropped to $455,000 from its peak of over $550,000 in April 2022, marking a 4.2% year-over-year decrease according to Redfin data. Despite this decline, the median price remains approximately 10% higher than the national median of $412,000. These lower prices could potentially drive up sales during the upcoming spring selling season.
Buyers facing affordability challenges may find better opportunities in the new construction market. According to Trevino, many builders in Austin are offering financing incentives that outmatch those available in the resale market.
In September, Austin's rental prices also saw a 3.2% year-over-year decrease, totaling $1,885 per month, as per Zillow Observed Rent Index data. In contrast, national rent prices rose by 1.4% year-over-year to $2,047. With more multifamily units on the horizon, it's possible that rents will continue to decline, especially if a significant portion of these units are located in the Austin area.
According to the Census Bureau's American Community Survey, as of December 2021, Austin boasted 955,000 households. While it ranks as the fourth-largest city in Texas, its rapid growth is evident as tech-related companies continue to migrate from higher-priced states. Between 2019 and 2021, the region saw an influx of over 137,000 new households, averaging more than 68,000 per year.
On a national scale, although costs for new single-family homes, as reported by the Census Bureau's Construction Cost Index, have decreased from their peak in November 2022, they remain 1.1% higher year-over-year. Since June 2023, construction costs have been on the rise, albeit not as steeply as they were in 2022.
Mortgage rates have experienced some fluctuations over the past year, generally lingering around the mid-6% range in recent weeks. The average mortgage rate for a 30-year fixed-rate mortgage, tracked by Freddie Mac's Primary Mortgage Market Survey, declined from 7.79% in October to 6.64% as of February 8, 2024.
Everything hinges on mortgage rates
When mortgage rates dipped in December and January, home sales saw an uptick. But will this trend persist if rates climb above 7%, as they did at the start of February? Such an increase could potentially dampen the enthusiasm of homebuyers.
Nevertheless, rates also impact inventory levels. As noted by Mike Simonsen, president of real estate data firm Altos Research, "Higher rates lead to higher inventory. Lower rates result in lower inventory."
The pivotal role of rates in the upcoming spring market highlights the importance of partnering with a knowledgeable local lender. They can help decipher economic trends and guide you towards making the optimal homebuying decisions for your situation.
Austin Real Estate Market Predictions
As the spring selling season draws near, experts hold differing opinions on the direction of home prices. If mortgage rates rise, there's a possibility of price decreases as buyers may hesitate and wait for rates to decrease again. Conversely, if rates decline, as anticipated by many housing experts, we could witness a surge in buyer activity, exerting upward pressure on housing prices.
"The current market expectation is for the Fed to commence interest rate cuts at its May or June meeting, which should result in a decline in mortgage rates during the latter part of the year. Decreasing rates are expected to stimulate demand, potentially leading to an increase in average prices by fall," states Idziak.
The U.S. News Housing Market Index predicts nearly 5,360 permits for single-family homes and approximately 4,750 permits for multifamily homes in the Austin MSA from December through February. While predictions for multifamily housing permits have closely matched actual numbers, forecasts for single-family detached homes have exceeded reported figures.
Turn to a local real estate specialist for valuable insights into your home buying or selling goals. Uncover exclusive opportunities in the current market landscape. Remember, mortgage rates can fluctuate rapidly, so stay updated by seeking advice from your local real estate professional. Reach out to us now to ensure informed choices throughout your real estate journey.
512-261-1000 | info@genearant.com | 4304 N Quinlan Park Rd, Austin, TX 78732
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