Home prices continued to climb at the end of 2024, rising 5.8% from the fourth quarter of 2023 to the fourth quarter of 2024, according to Fannie Mae’s Home Price Index (HPI).
The rise in year-over-year prices was an acceleration from the previous quarter’s revised rate of 5.4%. From a quarter-over-quarter basis, home prices rose a seasonally adjusted 1.7% in the fourth quarter, up from 1.2% rate in the third quarter. Fannie Mae’s HPI measures the average quarterly price change for all single-family properties in the nation, excluding condominiums.
Mark Palim, Fannie Mae senior vice president and chief economist, explained that inventories of existing homes for sale have improved from a year ago, but remain historically low. This was largely due to the continuing lock-in effect, in which homeowners with home loans at low interest rates are reluctant to sell their current homes and buy others at higher interest rates.
“Since October, mortgage rates have rebounded after bottoming out around 6.1% and are now inching closer to a new psychological barrier, the 7% threshold,” Palim said. “The higher mortgage rate environment is not only hurting affordability, but it’s also exacerbating the lock-in effect by further reducing homeowners’ incentive to move.”
He expects this year’s housing market to face a difficult balancing act, with a notable decline in mortgage rates needed to unwind the lock-in effect and thaw the supply of existing homes for sale. However, such a decline could also increase pent-up demand.
“We believe such a decline would likely jumpstart demand from potential first-time homebuyers currently waiting to purchase, which could lead demand to outpace any improvement in supply, further exacerbating already high home prices and purchase affordability,” Palim said.