October Market Update

 

We were hopeful that sales would continue to increase this month due to the declining rates as it did last month, but sales fell to the lowest level in modern history. Even though the Fed lowered their benchmark rate by 0.50% at the September Fed meeting, mortgage rates weren’t largely affected, mainly because the rate cut was already priced into the current mortgage rates. In Q3 2024, the median price fell 2.8% and the mortgage rate declined by 74 bps, causing the payment on a monthly 30-year mortgage to drop 10%. Affordability is improving and the median home buyer saved $100,000 over the life of the loan, if they bought in September rather than June (a huge change in just three months!). Rate cuts and improved affordability are a promising sign as we look ahead to the spring market. We expect to enter 2025 with falling rates, higher inventory, and seasonally lower home prices, which should create the perfect storm necessary for a hot spring market.

 

During the early pandemic, the Fed provided huge incentives to buy homes as part of its easy monetary policy by purchasing Mortgage-Backed Securities (MBS) and dropping interest rates. However, the Fed isn’t buying any more MBS and, in fact, has sold 15% ($4.16B) of its MBS holdings over the past two years. Even though rates are coming down, the MBS market has shifted to make loans less easy to originate, which has contributed to the market slowdown.

 

Even though far fewer sales occurred over the past year, prices still rose, which they almost always do. This is actually a newer phenomenon, but one that isn’t going away. Since the mid-1990s, home prices began to move more like risk assets (stocks, bonds, commodities, etc.), which marked a huge change from the preceding 100 years. From 1890 to 1990, inflation-adjusted home prices rose only 12%, which is hard to imagine with the massive price growth, up 94% nationally, that we’ve seen over the past 10 years. All that to say, home prices over time really only move in one direction, which is up.