Another Market Slowdown: How Rising Mortgage Rates Are Impacting Real Estate in 2024

As we navigate through 2024, the real estate market is experiencing significant shifts, driven largely by fluctuating mortgage rates. The year began with the average 30-year mortgage rate at 6.62%, marking the third consecutive year of elevated rates. Initial expectations for 2024 included potential rate cuts by March, fueled by a steady decline in inflation. However, these expectations have since been adjusted as inflation has plateaued around 3%, missing the Federal Reserve's 2% target. This development has led to a delay in cutting the federal funds rate, which indirectly influences mortgage rates.

Federal Reserve's Impact on Mortgage Rates

During its May meeting, the Federal Reserve decided to hold policy rates steady for the sixth time, keeping the federal funds target rate at 5.25% to 5.50%. Fed Chair Jerome Powell indicated that further rate hikes are unlikely, and any changes will likely maintain the status quo rather than lower rates. The Fed's dual mandate aims to achieve stable prices and low unemployment. With the job market still strong, the primary focus remains on controlling inflation.

Rising Mortgage Rates and Housing Affordability

The Fed's stance has resulted in higher mortgage rates, which have risen by 0.6% since the start of the year. Notably, two-thirds of this increase occurred in April, pushing the average 30-year mortgage rate to 7.22% by May — the highest level in 2024 and nearing the 23-year high of 7.79% seen last year. The rapid rise in rates, coupled with increasing home prices, has significantly impacted affordability. In April alone, the combined effect of rising rates and prices increased the monthly cost of a home by 7%, and from January to April, the monthly cost rose by 13%.

The Disconnect Between Supply and Demand

Despite higher rates, demand remains relatively high compared to supply, which continues to grow. However, the increased costs have made buyers more selective, slowing overall sales. This trend is unusual for spring, typically a peak season for real estate activity. The elevated mortgage rates have caused many potential buyers and sellers to hesitate, resulting in a market slowdown.

Regional Variations and Local Market Insights

While national trends provide a broad overview, regional differences and individual market dynamics can vary significantly. To address these variations, we offer a Local Lowdown section to provide detailed insights specific to your area. This information can help you make informed decisions whether you are buying or selling a home.

Navigating the Real Estate Market in 2024

The real estate market in 2024 is characterized by rising mortgage rates, increased home prices, and a slowdown in sales. As the Federal Reserve focuses on controlling inflation, potential buyers and sellers must navigate these challenges carefully. Staying informed about local market conditions and working with knowledgeable real estate professionals can help you make strategic decisions in this evolving landscape.

By understanding the current market dynamics and adjusting expectations accordingly, you can better position yourself to take advantage of opportunities in today's real estate market. As always, we will continue to monitor the housing and economic markets to provide you with the best guidance for your real estate journey.