Housing market activity will hopefully pick up in the next few weeks before the year ends, following the Fed’s latest rate cut announcement, according to the California Association of Realtor’s (CAR) latest report. Mortgage rates have already begun trending down after peaking last week, the report added.
The Fannie Mae (FNMA/OTCQB) Home Purchase Sentiment Index® (HPSI) increased 0.7 points in October to 74.6, pushing the measure of consumer confidence to its highest level since February 2022 and significantly higher than the all-time low recorded two years ago, according to fanniemae.com.
In October, the share of consumers who think it’s a good time to buy a home increased to 20%, according to the Fannie Mae report last week, while the share who think it’s a good time to sell a home declined to 64%.
Additionally, with improving job numbers and recent gains in the stock market, more Americans may be motivated to act, Lawrence Yun, chief economist of the National Association of Realtors, said early this week. He predicts an uptick of nearly 2 million jobs for 2025 and another nearly 2 million increase in 2026, which could bode well for the housing market.
“2023 and 2024 were both difficult years in the housing market,” Yun said, in a recent address to national realtors.
But pending home sales eked out a 3% year-over-year gain in September, he said, a signal that “maybe the worst is over.” Other good signs: Inventory of both new and existing homes is increasing, and the U.S. population has grown by 70 million from 1995, even though home sales have remained mostly at 1995 levels, signaling pent-up demand.
The Federal Reserve cut the fed funds rate by 25 basis points (bps) in its November FOMC meeting and reiterated that the central bank will continue to reduce its balance sheet, said the CAR report, which added that as the labor market continues to cool, it remains solid, as inflation moves towards the Fed’s 2-percent goal.
With the economy showing resiliency, the Fed may slow down its rate-cutting pace in 2025, said the CAR report.
In the near term, however, CAR noted, it is likely that the central bank will reduce the fed funds rate by another 25 bps in their December meeting. Since the Fed’s announcement, mortgage rates have come down from their recent peak reached last week, but the decline in the past few days was likely due mostly to the calming down of the financial market post-election, CAR posited.
Consumers feeling better about the job market and remaining hopeful that mortgage rates will come down next year are likely the contributing factors for the housing optimism. The share of survey respondents who expected rates to decline over the next 12 months dipped last month but continued to register at 39%, after reaching a record high of 42% in September. The increase in the overall housing sentiment is a positive sign for the market and is an indicator that many potential homebuyers are not giving up their dream of homeownership.
Housing affordability in California also improved in the third quarter, as the statewide index for existing single-family homes climbed 2 points on a quarter-to-quarter basis to 16% and inched up by 1 percentage point from 12 months ago, said the CAR report.
Slower price growth and more favorable interest rates raised California’s affordability up from a 17-year low in the second quarter.
The monthly mortgage payment for a median-priced home recorded in the third quarter bounced back from an all-time high set in the prior quarter, said the CAR report, declining 6.8% from Q2 and dipping 0.2% from the same quarter a year ago.
