Mortgage Rates, Inventory, and Home Prices: What You Need to Know
The real estate market is constantly evolving, and recent trends in mortgage rates, inventory levels, and home prices are shaping the landscape for buyers and sellers alike. Whether you’re considering purchasing a home or selling one, understanding these key factors can help you make informed decisions. Here’s what you need to know about the current housing market and what it means for you.
Over the past few months, mortgage rates have largely reverted to the levels seen before the Federal Reserve’s first rate cut in September. This shift has caught many by surprise, as mortgage rates typically follow the movement of the Federal Funds Rate. However, the lending market seems to anticipate that the recent rate cuts will be short-lived, suggesting that the Fed may increase rates again in the coming years.
One major reason behind this expectation is persistent inflation. Since 2022, inflation has remained stubbornly high, leading experts to believe that further rate hikes may be necessary to keep it under control. If this happens, borrowing costs could rise once again, impacting affordability for homebuyers.
Since the COVID-19 pandemic, inventory shortages have plagued the housing market, driving up home prices due to high demand and limited supply. However, there is good news—inventory levels are finally starting to increase across the country.
In December, housing inventory grew by 16.16% year-over-year, while existing home sales only increased by 9.28% during the same period. This suggests that more homes are becoming available relative to the number of buyers in the market. For prospective buyers, this means more choices and potentially less competition, which could lead to better deals.
While many buyers have hesitated to purchase homes due to mortgage rates hovering between 6% and 7%, home prices continue to climb. In November and December, the median sale price of a home in the U.S. was $404,400—a 6.03% increase from December 2023’s median sale price of $381,400.
This steady rise in home prices is concerning, especially since price growth is outpacing inflation. December’s year-over-year Consumer Price Index (CPI) was 2.9%, meaning home prices are increasing at a much faster rate than general consumer prices. Despite affordability concerns, strong demand and limited housing supply in many areas continue to push prices higher.
In addition to setting interest rates, the Federal Reserve also controls its balance sheet, which includes mortgage-backed securities (MBS). During the COVID-19 pandemic, the Fed significantly increased its MBS purchases to stabilize the housing market. However, since late 2022, the Fed has been gradually reducing these holdings, which affects overall liquidity and mortgage rates.
As the Fed continues to unwind its MBS portfolio, mortgage rates may remain elevated, making home loans more expensive. This could further impact affordability and home sales in the coming months.
While national trends provide a general overview of the housing market, real estate is highly localized. Some areas may be experiencing stronger price growth, while others are seeing more balanced conditions or even price declines. That’s why it’s crucial to stay informed about your local market trends.
To help you stay up to date, we’ve included our Local Lowdown below. This section provides in-depth insights into your area’s housing market, so you can make the best decisions whether you’re buying or selling.
The real estate market remains dynamic, with mortgage rates stabilizing, inventory levels rising, and home prices continuing to appreciate. While these trends present both challenges and opportunities, staying informed is key to making smart real estate decisions.
If you’re thinking about buying or selling a home, working with a knowledgeable local real estate expert can provide you with the insights you need to navigate the market successfully. Be sure to keep an eye on both national and local trends to make the best move for your future.
Stay up to date on the latest real estate trends.
You’ve got questions and we can’t wait to answer them.