Weekly Real Estate Monitor for Feb. 12-16

This week saw an increase in the 30-year fixed mortgage interest rate as the rates climbed back over 7%. The week started with rates at 6.96%, an already slight increase from the previous week, and at 7.14% as of today. Although rates have inched their way back, the overall trend since fall 2023 has been downward. 

 

While there are still expectations that rates may decrease to a lower 6% range later in the year, buyers are advised to weigh the pros and cons of each scenario and the overall impact on their home purchase decisions, as home prices are also expected to rise due to limited inventory. 

 

Timing the real estate market solely based on mortgage interest rates, especially marginal changes, is just one part of the equation as other factors such as market conditions, lifestyle wants/needs, and personal circumstances should be considered.

The recent 3.1% increase in the consumer price index in January is still considered high with the target inflation rate still being 2%. One significant factor contributing to this persistent high inflation is the 6% rise in housing shelter inflation, despite apartment rents stabilizing and single-family rent growth being modest. It's important to note that home prices are not included in the inflation measurement, as they are considered assets, similar to stock prices.

 

It is anticipated that the Federal Reserve will not reduce interest rates in the first half of the year as expected but the multiple (approx. 3-5) rate cuts may still occur in the second half of the year as rent measures are expected to become more stable. AS or right now, mortgage rates are projected to fluctuate weekly but are favored to trend towards 6% by the end of the year.

In January, there was a significant downturn in housing starts, exacerbated by heavier snowfall in many regions. Seasonally adjusted figures suggest a persistent housing shortage. Multifamily construction saw a 37% decrease from the previous year, marking one of the lowest levels of activity in the past decade. This drop is attributed to an oversupply from the last three years, not a reduction in renters, leading developers to scale back construction efforts. 

 

Single-family home construction also declined by 5% from the previous month, yet it stayed above the crucial threshold of 1 million units. To effectively address the housing shortage, single-family starts should ideally reach 1.2 million units. 

 

The United States faced a significant housing production deficit in the decade preceding the COVID pandemic, and a problem that continues to affect the market. Addressing this shortage requires incentivizing construction, however, certain local policies, such as rent control, NIMBYism, and increased impact fees, could exacerbate the shortage and ultimately drive up long-term housing costs

There was a 3.1% increase over the previous year in listings for the week. This increase is a positive sign for the supply situation, which has been a source of frustration for buyers. However, tight supply is expected to persist as although prices have cooled slightly week-over-week, they remain high for buyers, being 5.4% higher than the same week in 2023.

 

The median time to contract tightened at a consistent pace, reaching 20 days for the week ending February 11. This marked the fourth consecutive week of a two-day drop in the time to contract and was three days faster than the same week last year.

 

The housing market continues to experience fluctuations in listings and prices, impacting both buyers and sellers. The data suggests ongoing challenges related to supply and demand dynamics, as well as affordability concerns for potential homebuyers.