Sales of existing houses have plummeted to their lowest level in 29 years.
According to the National Association of REALTORS, existing home sales will be at their lowest level since 1995 – when dial-up internet was available and Windows 95 was released.
This alarming statistic highlights a complicated issue. The confluence between escalating housing prices and limited inventory creates an unaffordable situation.
According to NAR, in 2024 the number of homes that will be sold has dropped from 4.06 to just 4,06 million. The median price of the home is also at a new record high of $407,500.
Markets are struggling to cope with an acute shortage of supply, which is driving prices up to levels that cannot be sustained.
Why homeowners stay put despite the mortgage rate confusion
Mortgage rates are at the heart of this issue.
CoreLogic estimates that 80% of current home loan rates will be below 5% by September 2024.
The current homeowner is hesitant to switch from these favorable rates. This is especially true when the current mortgage rate is closer to 7%, which has been where 30-year average mortgages are stuck for several months.
Victor Currie is a California real estate agent who told Fortune that “we’re all in the same trap”.
We have a mortgage of less than 2%. It’s difficult to justify giving it up, until we downsize and leave California. Then we can use our equity built-up to purchase the next home in cash.
Low-interest mortgages are luring a large portion of the housing market to the sidelines. This further limits the supply of available homes.
Is there hope on the horizon for today? New construction and inventory gains
There is still hope for buyers in 2025, despite the grim picture.
Realtor.com projects an increase of 11.7% in the existing inventory by spring, compared with 2024.
The solution does not simply consist of increasing inventory.
It’s important to build more, but it isn’t a panacea for housing problems.
Sarah DeFlorio is the vice president for mortgage banking of William Raveis Mortgage. She told Fortune magazine that the high rates on mortgages and the high price tags on new inventories are making it difficult to buy.
DeFlorio says that it would be difficult to create enough new products to satisfy the enormous demand, plus the high construction costs mean many of the new products on the market are not within the reach of your average American family.
She says, “We’d need rates to drop into the low fives for people with these rates even to consider moving.”
Currie says that local factors such as zoning regulations and wildfires in recent years, like those which occurred around Los Angeles, further delay progress, and make the situation worse.
Currie says that this area is notoriously slow to develop and build because of the many regulatory obstacles.
It will be difficult to find enough skilled labor to rebuild areas that have been decimated, let alone create new housing for the population increase.
The new builds are a part of the solution, but they’re not a panacea
The impact of new construction varies according to the area and cost.
Jennifer Beeston is a mortgage lender at Rate.com and a senior vice-president. According to Fortune magazine, while certain markets have new developments priced between $200,000 and $300,000.
Beeston says that the complexity of new build does not stop there. “Many people see new construction as an easy solution, but it is not.”
To ensure quality construction, prospective buyers should also do thorough research on builders.
The last quarter of 2018 showed a positive trend despite the slowdown on the market for existing homes in 2024.
NAR reported that December sales reached their highest level since February.
DeFlorio says that even in tough markets, “life events” like marriage, children, divorce, and death, drive transaction.
Creative solutions for the “lock-in effect”
Beeston, of Rate.com, states that the current market conditions are constrained due to a “lock-in” effect. This will persist until mortgage interest rates fall below 6%.
She explains, “I think 5 is a magic number. But anything under 6 will start to show movement.”
She says that both the government and banks will need to come up with creative solutions in order to address this market.
She says, “Until government does something to encourage us to sell more products, this will continue.”
Some examples of these solutions are the “portable” mortgages seen in Canada or Britain. These mortgages allow homeowners to move their mortgage from one property to another.
Beeston suggests that banks offer lower than market rates for customers who already have lower rates and want to switch. This could stimulate the markets.
Buying a home in 2025: Strategies for Buyers
Prospective homebuyers can still have hope despite the challenging housing market.
DeFlorio advises, “It’s very important to not try and game the market.” Focus on the monthly payments instead of the interest rate, as this is the factor that will impact your bottom-line.
Buyers can find great options with careful planning and a thorough understanding of the current market.
Beeston tells the story of an ex-military veteran who used a VA Loan to buy a property worth $330,000 with no money down and at a price that was comparable to local rental rates.
She ends with an inspiring statement: “There are many opportunities right now, you just have to search for them.”
The post entitled “The great housing freeze”: Why the housing market has hit its lowest level in 29 years and what comes next could be updated as new information becomes available
