The National Housing Market Remains Strong Despite High Interest Rates

Key takeaways:  The US housing market continues to demonstrate resilience despite higher mortgage rates, with home values appreciating and new construction activity increasing. However, affordability remains a significant challenge, impacting buyer demand and potentially shifting more buyers towards new homes.

Home Value Growth:  National single-family home values rose 3% year-over-year in November 2024, according to the Zillow Single-Family Home Value Index. This growth is consistent with October and higher than the 2% growth seen a year ago. This signifies a robust market, with values up 48% since November 2019. Redfin also reported a 7% year-over-year increase in median sale prices for the week of December 29, 2024.

Regional Trends:  Home values are rising fastest in New Jersey, New York, and Rhode Island, while Louisiana and Texas are experiencing slower growth.

Sales Activity: Pending home sales increased by 6.9% year-over-year in November, according to the National Association of Realtors. New single-family home sales are also strong, exceeding the 2015-2019 average by 14% (on a rolling 3-month basis) and showing a 2% year-over-year increase. Homes are selling quickly, with approximately 25% being taken off the market within two weeks in December, slightly above pre-pandemic levels.

Affordability Challenges: Despite positive market indicators, affordability remains a major concern. Mortgage purchase applications were down 3% year-over-year in late December, suggesting that potential buyers are sensitive to rate fluctuations. Goldman Sachs Research has adjusted its forecast to only two Fed rate cuts in 2025, further impacting affordability.

New Construction on the Rise:  To address the limited housing supply, new construction is gaining momentum. Single-family home permits increased by 6% year-over-year in December. Builders are capitalizing on incentives and rate buydowns, potentially driving more buyers towards new homes as resale activity weakens.

Most and Least Affordable Markets: Goldman Sachs Research, using the National Association of Home Builders’ Cost of Housing Index, identifies the following as the most and least affordable housing markets in Q3 2024:

• Most Affordable: Indianapolis, Minneapolis, Atlanta, Nashville

• Least Affordable: Miami, Riverside, Las Vegas, North Port-Sarasota

Looking Ahead: The near-term direction of the housing market remains somewhat uncertain. However, new construction and the potential for increased activity during the home selling season offer positive signs. The balance between supply, demand, and affordability will be key factors to watch in the coming months.

Keywords: Housing market, home values, mortgage rates, new construction, affordability, home sales, real estate trends, market analysis, Goldman Sachs, Zillow, Redfin, National Association of Realtors, housing supply, regional trends, home prices, real estate forecast.