Low housing supply to keep prices elevated into 2025

Jeff Cox of CNBC reports on U.S. GDP growth, highlighting that in Q1 2024 it increased at a 1.6% annualized pace when adjusted for inflation, according to the preliminary read from the Bureau of Economic Analysis. Economists had predicted an increase of 2.4% following a 3.4% gain in Q4 2023 and 4.9% in Q3 2023. Cox quotes David Donabedian, chief investment officer of CIBC Private Wealth US, as saying:

“This was a worst of both worlds report – slower than expected growth, higher than expected inflation…We are not far from all rate cuts being backed out of investor expectations. It forces [Fed Chair Jerome] Powell into a hawkish tone for next week’s [Federal Open Market Committee] meeting.”

Jing Fu of the National Association of Home Builders (NAHB) reports on the GDP data, highlighting that in Q1 2024, the US economy grew slower due to an increased trade deficit and weaker inventory investment. However, consumer and government spending, and the housing industry supported the economy. The GDP report suggests inflation accelerated, with the GDP and PCE prices rising significantly.

Source: NAHB (May 2024)

David Uberti of the Wall Street Journal reports on the economy, noting that GDP growth came in well below expectations and inflation is still stubbornly high. The data makes it harder for the Fed to cut rates, as continued price pressures complicated the outlook. “Typically, an underwhelming growth figure would boost hopes that the Fed will lower interest rates. But continued price pressures complicated that outlook. The inflation reading sparked a selloff in bonds, sending yields on the 10-year Treasury to 4.706%, their highest level since November.”

Megan Leonhardt of Barron’s reports on what this may mean for interest rates over the rest of the year: “Since the start of the year, markets have pulled back quite substantially in terms of expectations for the number and timing of the interest-rate cuts that could come in 2024. Prices for interest-rate futures now indicate nearly 45% odds that the Fed will cut rates for the first time in September, but the economic picture could shift substantially as more data come in.”

Home sales

Pending home sale prices reached an all-time high for 2024 in the U.S., according to the National Association of Realtors (NAR). Specifically, pending home sales in March increased by 3.4%. The Northeast, South, and West regions showed monthly transaction gains, while the Midwest saw a loss. Compared to the previous year, the Northeast and South regions decreased, while the Midwest and West regions showed improvement. NAR forecasts that median home prices will jump by 1.8% in 2024 to a record of $396,800 and another 1.8% in 2025 to $403,800.

Fannie Mae comments on this new annual high in home sales, noting that “the rise…presents a bit of upside risk to our near-term existing home sales forecast. Still, pending sales recorded in March occurred before rates jumped back above 7 percent, so we expect a small pullback in existing sales in Q2 as the higher rates weigh on demand. On the new sales side, after revisions, the Q1 quarterly sales pace aligned with our forecast. At 8.3, the months’ supply is consistent with ongoing use of incentives, which we believe will help new home sales rise as the year progresses.”

Home sales increasing

Source: Fannie Mae (May 2024)

Ana Teresa Solá of CNBC explains why we are seeing this new high in home sales despite mortgage rates pushing higher above 7%. Buyers are turning to new homes, where builders are typically more flexible with pricing. Homebuilders also offer incentives such as rate buy-downs, price reductions, and covering closing costs. Further, price parity between resale and new builds has narrowed to a three-decade low, according to Solá.

Price gap between new and resale homes dropping

Source: CNBC (May 2024)

“Over the last six months, the median price for a new home is only about 4% higher than the median price of an existing house. That level is significantly lower than before the pandemic when the median price of a new home was more than 40% higher than an existing house”

That said, home starts have stalled lately, according to a new Fannie Mae report. Housing starts in March fell 14.7% to 1.32 million, marking the lowest level since August 2023. Single-family starts dropped 12.4% to 1.02 million, while multifamily starts were down 21.7% to 299,000 – the lowest level since 2017. Single-family permits declined 5.7% to 973,000, ending a 13-month streak of increases, and multifamily permits fell 1.2% to 485,000.

Profit margins

A new report from ATTOM Data Solutions highlights the decline in home-seller profits over the last year. Specifically, profit margins on median-priced single-family home and condo sales in the U.S. fell to 55.3% in Q1, the smallest level in two years. The median nationwide home price declined by 4.3% to $330,000, one of the largest quarterly declines over the past ten years. Investment returns for sellers hit a low point since mid-2021 after several increases last year.

Home profits decline

Source: ATTOM Data Solutions (May 2024)

Rob Barber, CEO for ATTOM Data Solutions, commented on the data:

“The latest price and profit numbers show notably downward trends, which raises new questions about whether the housing-market boom is indeed ebbing, or even ending, after so many years of improvement…But due caution is needed in looking at the first-quarter data and what the patterns mean. We saw a similar downward pattern from late 2022 into early 2023, and then the market surged. Plus, profits and profit margins still are very high by historical measures. Amid all that, the Spring buying season will be a huge barometer for whether the market still has steam in its engine.”

A second report from ATTOM Data Solutions focused on specific markets where profit margin increases were happening the most nationwide. Those metros rounding out the top 10 include: 

  • Ocala, FL (up from 90.8% to 128%)
  • Punta Gorda, FL (up from 83.5% to 103.1%)
  • Deltona–Dayton Beach-Ormond Beach, FL (up from 66.7% to 81.1%)
  • Scranton–Wilkes Barre–Hazelton, PA (up from 94.1% to 106.5%)
  • Atlantic City–Hammonton, NJ (up from 62.1% to 72.8%)

Counties where home profits declined

Source: ATTOM Data Solutions (May 2024)

Sarah Marx of HousingWire reports on the ATTOM data, highlighting that there may be some silver lining for those seeing a decline in home profits. “The good news for potential home sellers is that limited housing supply could push home prices higher this spring.  But mortgage rates above 7% are harming housing affordability and making the dream of homeownership more elusive for many Americans.”

Indeed, home prices continue to rise, according to new data from Redfin. The median U.S. home sale price hit a record $383,725, up 5.2% from a year earlier. High prices and mortgage rates drove the median monthly housing payment to a record $2,843, up 13% year over year. Prices are soaring despite more inventory than last year. New listings are up 10.2% yearly, though growth may be losing momentum. Inventory remains low despite recent improvements, buoying prices.

The post Low housing supply to keep prices elevated into 2025 appeared first on Stessa.

Check Also

Tee Off in Style: Exploring the Golf Courses of Newport County, Rhode Island

Tee Off in Style: Exploring the Golf Courses of Newport County, Rhode Island

Newport County, Rhode Island, is a golfer’s paradise. It offers an impressive array of courses …