All eyes will be on the housing market this spring, the typical time of year that most home sales occur. Home sales last year dropped to 4.09 million, an 18.7% decline from 2022. How the housing market fares in the first few months of spring will show whether it will be a good year or another miserable one.
First American Financial’s Odeta Kushi believes that 2024 won’t be “quite right,” but it will be heading in that direction. She spoke to Scotsman Guide about her thoughts on the homebuying season, what indicators she’ll be watching and how the market should look in 2025 and beyond.
What does it mean that 2024 will be heading in a ‘normalizing direction’?
Not too hot, not too cold, not quite right though. We expect inventory will pick up a little bit. House prices will remain positive, but at a more moderate pace. Not like during the pandemic when we were seeing double-digit house price growth, but we also are not expecting negative growth in 2024. There’s still quite a bit of demand in the market.
Has the mortgage market bottomed out?
I think so. If the expectation is that mortgage rates will come down this year, then we should see a pickup in refi and purchase activity.
Do you think it’ll be a busy homebuying season?
I do expect that we’ll see increased demand over the spring homebuying season. When we’ve looked back at our data and found that the bulk of sales happened between March through June. We calculated nearly 40% of existing home sales for the year occur in those months.
When do you think we’ll see interest rates decline?
We’ll probably see more of the declines in the second half of the year. Chairman (Jerome) Powell has indicated multiple times that they’re taking a data-driven patient stance. They’re afraid of cutting rates too early. The economy remains very strong. I don’t think that we’ll see a rate cut from the Fed until their May meeting. I don’t think we’ll see mortgage rates really come down until the second half of the year, but even then, it’ll be a slow and gradual pullback.
What statistic or indicator will you be looking for to see how the housing market’s faring?
Just one? I always look at mortgage applications. It’s a higher frequency data point and a leading indicator of sales activity. So, I do tend to monitor what’s happening with mortgage applications for both purchase and refi to get a good pulse on the market. And, of course, house prices. Seeing the trajectory of house prices gives you good insight into the state of the housing market.
Anything that would give you concern about this year’s housing market?
The housing market is so interest-rate sensitive. A lot of the forecasts in the housing market today are based on the expectation that mortgage rates will come down this year. That would certainly be concerning if mortgage rates started to head in the opposite direction. If we start to see a reacceleration in inflation that would be one reason why we would see mortgage rates increase.
New construction makes up a large share of the housing market right now, right?
Historically, it’s been like 10% to 12%. These days it’s nearly 30% of overall inventory.
How are builders feeling about this market?
Increasingly better as of the latest home builder sentiment reports, because mortgage rates were coming down from recent highs. There’s still a lack of existing home inventory on the market, which bodes well for builders. If you can’t find an existing home for sale, a new home is a pretty good substitute.
What will 2024 say about the housing markets in 2025 and 2026?
There’s quite a bit of demographic demand for housing from the millennial generation aging into their prime homebuying years. So, 2025 looks from this vantage point like it might be even more normalizing for the housing market. So, I’m cautiously optimistic about ‘25 and beyond.
Why do you believe this will be a better year?
Mortgage rates coming down have a dual impact on the housing market, both alleviating the rate lock-in effect for potential sellers, but also making it more affordable — all else held equal — for potential homebuyers. We still believe that rates won’t fall enough to bring a meaningful number of existing homeowners to the market, which is why we believe that supply will continue to remain constrained in 2024.
On the demand side, if mortgage rates end the year about 6%, which seems to be around industry consensus, that will help affordability. But affordability will still be constrained from a historical perspective. We’ll see improving conditions, but it won’t be normal yet. It won’t be quite right just yet. ●
