U.S. Housing Report: How Mortgage Rates, Inflation, and Regional Trends Are Reshaping the Market

Despite news of rising existing-home sales, rising mortgage rates have tempered what started as a promising fall season. “From late August through early October, when rates were at their lowest, new buyer inquiries and appointment requests surged as buyers who had been on the sidelines cautiously entered the market,” observed Douglas Wagner of BOND New York.

“The average 30-year fixed mortgage rate is much higher than a few years ago,” added Maria Avellaneda of Keller Williams NYC. “Many sellers holding lower-rate mortgages are hesitant to sell and purchase at significantly higher rates.”

According to Freddie Mac, affordability briefly improved in late September, when average 30-year fixed mortgage rates reached a two-year low of 6.08%. However, by November 30th, Freddie Mac showed that rates had climbed back up to 6.81%—still below the 7.44% peak one year ago. Wagner noted, “Sellers remained largely on watch during the autumn market, but fewer owners than anticipated actually listed their homes for sale as they watched interest rates climb back to pre-August levels.”

The fluctuation in mortgage rates has caused a behavioral shift among sellers. “Mortgage rates have peaked and are now beginning to decline, though at a slower and less aggressive pace than anticipated earlier this year,” explained Jared Antin of Elegran | Forbes Global Properties. “This stability is crucial—it provides the certainty and confidence needed for sellers and buyers to move forward with transactions. However, we likely won’t see a widespread ‘unlocking’ of the market caused by lower rates. Instead, sellers will increasingly list their homes based on life circumstances rather than timing the market.”

The Federal Reserve’s monetary policy continues to shape housing market trends. “The Fed’s monetary policy has a direct impact on consumer confidence overall, and this trickles to the home sales market eventually,” said Wagner. “Decisions by the Fed to lower benchmark interest rates have a more immediate effect on credit card and automobile loans than on the mortgage market, which more closely watches the yields on the 10-year Treasury bond.”

“Despite a 50-basis-point rate cut by the Federal Reserve in September 2024, mortgage rates have risen nearly 100 basis points since, reflecting a lag in policy effects,” noted Avellaneda. “Banks are cautious, maintaining high lending rates while benefiting from lower Fed borrowing costs.”

Treasury yields below 4% in August briefly lowered mortgage rates, spurring buyer activity. Yet, when yields rose above 4% by October, rates climbed again, disheartening potential buyers. Antin highlighted the direct implications: “The Federal Reserve sets short-term interest rates, which ripple through the economy, influencing loan and mortgage rates. This dynamic directly impacts housing affordability and the pace of transactions.”

Inflation and job market stability also play critical roles in shaping housing demand. “Easing but elevated inflation continues to strain purchasing power, while the NAHB predicts falling interest rates could alleviate some pressures if realized,” emphasized Avellaneda. “Low unemployment provides stability that typically supports demand, yet high costs and mortgage rates have slowed sales. Still, job market stability encourages some buyers to view housing as a safe investment.”

Wagner echoed similar thoughts: “As inflation continues to decrease, buyer confidence should increase—especially if deflationary pressures can slow increasing housing prices in the coming year. The stable job market gives buyers confidence to proceed with a long-term purchase, and as more jobs are added, or if unemployment falls below 4% again, there is a favorable likelihood that people will continue to invest in homes for themselves.”

“Housing demand hinges on financial stability and confidence,” added Antin. “A mild to moderate recession could paradoxically bolster housing demand if it drives employers to enforce return-to-office policies.”

Due to October’s unseasonal increase, it is possible 2024 could end with more than four million existing-home sales, as total housing inventory is up 19.1% from one year ago.

The increase in existing-home sales may be short-lived, because rising mortgage rates since late September could deepen the seasonal low typically seen in November and December. However, according to the NAR report, October’s inventory reached 1.37 million, up 0.7% from September, with 4.2 months of supply available.

“High mortgage rates and a median existing-home price of $416,700 as of August 2024 result in a median monthly payment of $2,587,” Avellaneda noted. “These costs have dampened buyer confidence, with many delaying purchases in hopes of improved affordability.”

“We are not seeing widespread price reductions,” said Antin. “Instead, negotiability is decreasing (for well-priced and positioned properties), and prices are stabilizing and inching higher. [The market] is showing early signs of bullish momentum, poised for price appreciation after an extended period of stagnation.”

Still, high housing payments and stagnant price reductions are compounding buyer hesitation. “Many buyers are baffled that sellers have not been more willing to lower their asking prices to accommodate the anemic sales environment,” Wagner explained. “Sellers who are comfortable with their housing payments have shown that they’re willing to ride out the sluggish market in anticipation of a more competitive buying environment, even if that means waiting until next spring to sell.”

Zillow’s November 18th Home Value and Home Sales Forecast outlines projections for the remainder of 2024 and the next 12 months. Based on Zillow’s Home Value Index, home prices are expected to remain stable despite the recent worsening outlook for mortgage rates. Zillow attributes this stability primarily to “expectations for improvements in home sales activity,” which serve as the key driver for firm home prices and softening rent growth anticipated in 2025.

Zillow forecasts that home values will rise 2.6% for the remainder of 2024 and 2.8% in 2025, an upward revision from the previous month. Zillow predicts that home values will only climb modestly due to limitations such as limited new for-sale listings and elevated mortgage rates, although low inventory and the expectation that mortgage rates will decline may synergistically increase home values.

While Zillow now forecasts approximately 4.3 million existing-home sales during 2025 (a conservative increase from that of 2023 and estimated for 2024), a November 21st report by Fannie Mae predicts that existing-home sales will be historically low during 2025 due to recent increases in mortgage rates. 

A November 25th report from GlobeSt indicates that Fannie Mae has adjusted its forecast for 2024 home sales, projecting a decrease to 4.71 million, slightly lower than its earlier estimate of 4.77 million. NAR, Zillow, and Fannie Mae all agree that transactions will remain subdued without significant rate decreases.

According to a November 26th U.S. Census Bureau report, new single-family home sales fell sharply in October as fixed-rate mortgages approached 7% at the end of September, resulting in the highest inventory of new home construction for sale since 2008.

The report’s data (available under “Current Press Release tables”) shows that October new home sales were at a seasonally adjusted annualized rate of 610,000, falling short of the 725,000 forecast. Part of this decline was caused by the impact of recent hurricanes in the South (Hurricane Helene on September 26th and Hurricane Milton on October 9th). The figures reflect a 27.7% MoM decrease in new single-family home sales and a 19.7% YoY drop.

Other regions also experienced a MoM decrease in new single-family home construction, including the West (-9.0%). However, the Northeast showed the most strength with a 53.3% MoM increase and a 35.3% YoY gain. The Northeast and Midwest markets account for only about one-third of overall sales, whereas the South and West dominate the numbers. Therefore, trends in the South and West have a far greater influence on U.S. new home sales.

The U.S. Census Bureau’s October data reveals a rise in new single-family homes for sale, with 481,000 units available—up 2.1% MoM and 8.8% YoY. The months of supply (MoS) also increased, rising from 7.7 to 9.5 MoS, reflecting a 23.4% MoM and 20.3% YoY increase. This uptick in inventory and supply indicates a shift toward a buyer’s market. However, a lower-than-expected number of new home sales is viewed as negative for the market, which could be considered bearish for the U.S. dollar, as investors watch for broader economic implications.

As 2025 approaches, the market’s trajectory hinges on adaptability among buyers recalibrating expectations, sellers adjusting to shifting conditions, and policymakers fostering affordability. “Buyer confidence is postponed for now in the hopes that a new presidential administration will finally unlock the stagnant housing market in favor of buyers and sellers,” said Wagner.

“The combination of inflation trends, Federal Reserve policies, and a stable job market will ultimately determine whether housing demand can rebound,” concluded Avellaneda. “As we move forward, strategic collaboration between buyers, sellers, and industry stakeholders will be key to navigating these uncertain times.”

In our next article, HAVEN will take a further look at the numbers: how the current U.S. housing market is reacting to prevailing economic factors influencing real estate.