Wall Street analysts expected the housing market to show signs of life in 2024. Instead, it remained stagnant.
The reason is largely tied to the bumpy path of mortgage rates this year along with low supply and record home prices. In January, the average 30-year fixed mortgage rate was around 6.6%, according to Freddie Mac.
Now, despite the ups and downs, the rate is around the same level. It was 6.72% in the week through Wednesday, compared to 6.6% the week before, according to data from Freddie Mac.
Since the cost of borrowing has not gotten cheaper, it has not triggered any significant movement in buying and selling activity. In fact, existing home sales are about to set the record for the worst year since 1995 for the second year in a row.
“I was thinking that this year we would see the housing market freeze start to thaw and we would see some more activity,” Jeff Tucker, chief economist at Windermere Real Estate, told Yahoo Finance in an interview. “Things didn’t turn out that way.”
Read more: When will mortgage rates go down? A look at 2025.
Real estate activity got off to a rocky start this year. Mortgage rates, which had been falling through the end of 2023, stabilized and then began to rise again in February, with the average 30-year rate hitting 6.77% in the middle of the month, according to data from Freddie Mac.
The rate hike followed a better-than-expected January jobs report and comments by Federal Reserve Chair Jerome Powell in early February that the Fed would need to see more progress on inflation before reduce borrowing costs. The Federal Reserve does not control mortgage rates, but its actions do influence them through movements in bond yields.
Rising home prices further compounded the pressures of rising rates. The median sales price of existing homes increased 5.7% compared to February of last year, marking the eighth consecutive month of year-over-year price increases, according to the National Association of Realtors (NAR).
High home prices priced out many budget-conscious buyers. Pending home sales, a forward-looking indicator of home sales based on contract signings, fell 7% year over year in February.
Still, there were reasons for optimism. Redfin data showed new listings rose 10% year over year for the four weeks ending February 18, the biggest increase in two months, as homeowners took advantage of rising home prices.
“Inventory improved from the bottom, but remained limited in many markets, sales activity was weak and mortgage rates had a bumpy ride,” Ali Wolf, chief economist at Zonda, told Yahoo Finance.
Wall Street analysts expected the housing market to rebound in 2024. Instead, it remained stagnant: Existing home sales are poised to set the record for the worst year since 1995 for the second year in a row. (Photo by Paul Bersebach/MediaNews Group/Orange County Register via Getty Images) ·MediaNews Group/Orange County Register via Getty Images via Getty Images
As spring approached, more house hunters were actively exploring and submitting loan applications.
Although the purchasing activity was in an initial phase, it did not translate into an increase in sales. Sales of existing homes plunged 4.3% in March to a seasonally adjusted annual rate of 4.19 million, according to NAR. Mortgage rates remained elevated near 7%, further contributing to the slowdown.
“Many people were surprised that home prices didn’t go down as mortgage rates went up. This showed us that the imbalance between supply and demand was more powerful than borrowing costs,” Wolf said.
By summer, mortgage rates reversed course and began to decline as new data showed inflation was slowing. In June, the Federal Reserve held interest rates steady and projected a one-time cut for the year.
That still wasn’t enough to get some would-be homebuyers out of the bank, and high costs remained a major hurdle. Data from the National Association of Realtors showed existing home sales fell 5.4% from a year ago in June, while the median sales price hit $426,900, setting a record for the second straight month.
High housing costs “threw some cold water on homebuyers who were hoping for a real change in conditions,” Tucker said.
In September, mortgage rates fell more than half a percentage point over a six-week period as investors priced in the Federal Reserve’s interest rate cuts, which began during the month and continued through 2025.
But sales did not improve because many would-be buyers and sellers who were trapped in historically low borrowing costs were playing the waiting game. Sales of existing homes fell to the lowest level since 2010 during the month of September, according to NAR.
Home hunters expected mortgage rates to fall further once the Federal Reserve lowered interest rates to get serious about buying. The Federal Reserve cut its benchmark rate by half a percentage point on September 18. But many economists warned that mortgage rates were unlikely to fall much further.
In fact, mortgage rates began to rise, approaching 6.5% in October, as markets adjusted their expectations about the extent and timing of future Federal Reserve rate cuts.
“Historically, mortgage rates move in tandem with changes in Federal Reserve rates,” Wolf said. “This year, however, mortgage rates actually rose after the Federal Reserve cut rates. This is because investors ultimately drive up mortgage rates and are taking into account other economic data and policy proposals. policies and allocating their funds accordingly.
As 2024 draws to a close, the trajectory of rates appears uncertain. At its December policy meeting, the Federal Reserve projected two rate cuts next year, down from a previous forecast of four. Investors remain concerned about complicated inflation data and the possible impact of the incoming Trump administration’s policies on price increases.
Read more: How the Federal Reserve’s rate decision affects mortgage rates
Analysts have said they believe real estate activity will rebound in 2025 as more homes come to market and buyers and sellers adjust to the reality of today’s higher interest rates.
In an encouraging sign, existing home sales in November rose 6.1% from a year ago, the largest year-over-year gain since June 2021, according to NAR.
“We think the exit will continue to be slow,” Danielle Hale, chief economist at Realtor.com, told Yahoo Finance’s Claire Boston.
Dani Romero is a reporter for Yahoo Finance. Follow her on X @daniromerotv.
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