Two Stumbling Blocks in the Early 2024 Housing Market

The early months of the new year have seen a challenging start for home buyers, affected by rising mortgage rates and adverse weather conditions.

The market is continuing its downturn, with pending home sales over the last four weeks showing an almost 8 percent decline compared to the same period last year, according to a report issued by Redfin on Thursday. The decline, the most substantial in the past four months, comes as mortgage rates remain high, further complicating the home-buying process for many Americans.

Mortgage rates soared to highs of over 8 percent in October of last year, but have seen a steady descent since, coming down to around 6.64 percent on Thursday, according to data from Freddie Mac via the Federal Reserve Bank of St. Louis, a development that has sparked some activity among buyers.

"We're seeing a bit of recovery with house hunters touring homes, but even demand at the earliest stages isn't up as much as we would expect at this time of year," Chen Zhao, Redfin's economic research lead said in a statement. "That's because mortgage rates are climbing again and winter weather has been harsher than usual in much of the country, keeping some house hunters at home."

Despite the challenges, there are signs of life in the market.

Redfin's Homebuyer Demand Index, a measure of requests for tours and other home-buying services from Redfin agents, has seen a steady increase since mid-January. Additionally, home tours have surged by 16 percent since the year's start, an encouraging sign when compared to the 10 percent rise seen at the same time last year.

New listings have also seen a 7 percent year-over-year increase, suggesting that some sellers are still optimistic about finding buyers in the current market.

"High mortgage rates brought the local market to a near-standstill from August through November, activity picked up when rates dropped a bit in mid-December, and now it's slowing down again as rates rise," Luis Rojas, a Redfin Premier agent in Florida said in the report.

"I'm advising buyers—especially first-timers—that the mortgage rates they see in the news aren't the be-all and end-all. Some local lenders are willing to give rates in the [five percent] range for new construction projects because any business is better than no business," Rojas said.

While local deals on rates and other stimulants for a newly constructed home have become the norm in the last several months as home builders offer incentives to buyers, the market is waiting for mortgage rates to come down more broadly—but that won't happen until the Federal Reserve begins to reduce its federal funds' rates.

When Will Rates Drop?

Despite anticipation from some market observers for a rate cut that could relieve mortgage rates, the Fed has signaled its intention to maintain the current rates in the near term, which came in response to a hotter-than-expected January jobs report and the ongoing need to manage inflation.

However, those same observers, including Larry Tentarelli, president and founder of Blue Chip Daily Trend Report, believe that the rate cut will arrive by summer.

"We maintain our May/June 2024 first rate cut expectation," Tentarelli said in an emailed statement to Newsweek.

Others, like Katerina Simonetti, senior vice president at Morgan Stanley's Green Wave Wealth Management Group, remain optimistic about potential shifts in the Fed's policy. "We know we are not going to have any more rate hikes," Simonetti said in a live CNBC interview on Monday, suggesting that a reduction in the Fed's funds rate could be on the horizon, potentially as early as June.

According to the CME FedWatch tool, a measurement of market expectations for federal funds rate changes, there is a 61.2 percent chance of a rate cut in May, and an even greater 96.5 percent chance for a rate cut in June, which would be a boon for mortgage rates, according to experts.