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Provided by: nar.realtor.com
By: Aarthi Swaminathan
January 8th, 2025
After nearly three years of grappling with an expensive housing market, home buyers are showing signs of getting used to it. Though the data is still preliminary, it points to an emerging trend in which house hunters are adjusting to higher mortgage rates. Home transactions are broadly up over the past few months, and consumer sentiment toward buying a house is warming up.
“Home-sales momentum is building,” Lawrence Yun, the chief economist at the National Association of Realtors, a trade group, said recently. Consumers have grown accustomed “to a new normal of mortgage rates between 6% and 7%,” he added.
Even if homeowners with ultra-low mortgage rates remain reluctant to move — a phenomenon known as the lock-in effect — that dynamic may be easing among those with relatively higher rates, Andy Walden, vice president of research and analytics at Intercontinental Exchange, told MarketWatch.
And that gradual shift in home-buying attitude is giving the housing industry some hope for 2025.
“This is the first year in three years where I’m like, ‘It’s probably going to be better than the year before,’” Leo Pareja, chief executive of eXp Realty, told MarketWatch. But for people trying to buy a house this year, the future may feel less rosy.
Early indications of a thawing housing market
The two major pieces of data that suggest consumers are begrudgingly accepting a new, more expensive housing market are the recent increase in home sales and the uptick in housing sentiment. In October and November, the latest months for which data was available, home sales increased, according to the NAR.That trend was broad-based: The number of homes sold across most of the nation grew between October and November as buyers snapped up properties during a brief period of time when the 30-year mortgage rate fell close to 6%.
The median price of a home sold over that period was $406,100, which was up nearly 5% from the same month a year ago. Additional data suggested that more buyers were on their way. Pending home sales, which refer to contracts signed a month or two before a home is sold, also rose in November in most regions. At that point, Yun said, “consumers appeared to have recalibrated expectations regarding mortgage rates and are taking advantage of more available inventory.”
Meanwhile, in a recent survey of consumers by the housing-finance giant Fannie Mae, consumer sentiment ticked up over the course of 2024, even though people were “discouraged” by soaring home prices and mortgage rates over the past few years, said Mark Palim, the company’s chief economist.
That “may reflect a slow acclimatization to the generally less-affordable market conditions,” Palim said. Part of the optimism, however, was driven by an expectation that rates would fall over the next 12 months. And the data did not indicate a sea change in terms of attitudes toward buying a home: Only 22% of consumers said it was a good time to buy.
The math on buying a $400,000 home
Getting a foot on the homeownership ladder remains a daunting prospect for most Americans. Case in point: the salary required to afford a home that costs $400,000, considered to be the typical home price. To afford that, home buyers would need to earn a six-figure salary, according to calculations by Lisa Sturtevant, the chief economist at Bright MLS, a real-estate-listings service.
The 30-year mortgage rate averaged 6.91% in the week of Jan. 2, according to Freddie Mac data. Assuming a 10% down payment, the monthly payment — which includes principal, interest, property taxes and insurance — for a $400,000 home would be about $2,900. In other words, a buyer would need to make almost $125,000 to qualify for a mortgage, Sturtevant said. The median U.S. household income, adjusted for inflation, is around $80,000, according to Census data.
Not a full recovery — yet
To be sure, prospective home buyers are still looking at a frosty housing market, due to the yawning gap between the cost of buying a home and incomes.Rates are still high enough to spook buyers who don’t have a pressing need to buy a home, and high home prices deter those who want to upgrade or downgrade but don’t want to give up their ultra-low rate for a higher one. Most homeowners have a rate that’s lower than the current 7%. Only about two in 10 borrowers had a mortgage rate of 6% or more in the third quarter of last year, according to the most recent data available from the Federal Housing Finance Agency. The prevalence of low rates among people who already own homes is leading some real-estate pros to remain skeptical about whether the housing market has turned a corner. They expect homeowners to stay put for longer, while buyers struggle to find homes to buy.
“It’s like when you were a kid at a dance, and the boys are on one side and the girls are on the other, and nobody wants to make the first move,” Bess Freedman, chief executive of Brown Harris Stevens, a real-estate brokerage in New York City, told MarketWatch.
“We have been at a standstill,” she added, “and that is unhelpful.”
So “we need to get more people on the dance floor. I want 2025 to come alive and get people out there in the market,” Freedman said. Some also believe that the industry is overly optimistic about a turnaround in buyers’ attitudes toward rates. “I don’t know that there has been a broad acceptance of mortgage rates being at these levels,” Greg McBride, the chief financial analyst at Bankrate, told MarketWatch. “There are still a lot of prospective buyers that are pinning their homes on a return of 4% or 5% mortgage rates,” he added. “I just don’t think that’s what 2025 is going to deliver.”
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