May 2024 Housing & Mortgage Market Insights: What You Need to Know

Mortgage Market rates climbed above 7% in April, impacting the US housing landscape with reduced sales and construction activities. The economic growth in the first quarter faced moderation, reflecting the challenges posed by inflation. While Millennials and Gen Xers secured low mortgage rates, refinance opportunities still exist within these generations.

This comprehensive analysis provides a detailed overview of the current status and future outlook of the US housing and mortgage market, shedding light on crucial trends and potential implications for buyers and sellers alike.

Key Takeaways:

  • Economic Growth: U.S. economic growth moderated in Q1 2024, with consumption expenditures, net exports, and government spending contributing to the slowdown.
  • Labor Market: The labor market showed signs of cooling with a decrease in job growth in April 2024, although the unemployment rate remained below 4% for the twenty-seventh consecutive month.
  • Inflationary Pressures: Inflation remains a concern, with the core PCE price index rising and the Consumer Price Index increasing in April 2024.
  • Housing Market: Mortgage rates rose above 7% in April, slowing down the housing market, with a decline in home sales and new construction. Existing home sales were significantly impacted.
  • Mortgage Rate Analysis by Generation: Millennials and Gen Xers have secured low average rates, but there is still refinance potential among these generations. Gen Z borrowers entered the market at higher rates.

In this mortgage and housing analysis for May 2024, we’ll cover the following topics:

  1. U.S Economic Outlook
  2. Housing Market Trends
  3. Mortgage Market Insights
  4. Generation Analysis
  5. Housing Market Outlook
  6. Risk & Challenges
  7. Housing & Mortgage Rate FAQs

U.S. Economic Outlook

GDP growth

To address the recent trends in the U.S. economy, growth moderated in the first quarter of 2024. The Real Gross Domestic Product (GDP) saw a 1.6% rate, a decline from the previous quarter. Consumption expenditures, net exports, and government spending were all factors contributing to this slowdown.

Labor market trends

With nonfarm payroll employment increasing by 175,000 in April 2024, the labor market showed some cooling. Despite the unemployment rate of 3.9%, average hourly earnings saw a rise of 3.9% from the previous year. The jobs report indicates a resilient but cooling labor market.

Labor market trends

Outlook on inflation and interest rates suggests that the current high inflation rates have implications for the Federal Reserve’s monetary policy. The Consumer Price Index increased by 0.4% in April, exceeding expectations. High inflation is expected to impact consumer spending behavior and credit performance, potentially leading to a slowdown in economic growth.

Housing Market Trends

Home sales and prices

To address the current state of the housing market, home sales are experiencing a slowdown due to rising mortgage rates, with total sales declining in March. Despite this, new home sales have shown growth, hinting at shifting buyer preferences. Prices continue to rise due to low inventory levels, maintaining pressure on affordability.

Inventory and supply

An examination of the housing supply reveals a shortage of available homes for sale, particularly in the existing home market. This scarcity is a key factor contributing to the ongoing rise in home prices and competitive buying conditions for prospective homeowners.

Mortgage rates and affordability

Trends in mortgage rates are a significant consideration for potential buyers. Currently, rates have climbed above 7%, impacting affordability for many. Despite this challenge, favorable demographics, especially among Millennials, may continue to drive demand in the housing market, with refinancing potential still existing for certain generations.

Mortgage Market Insights

Refinance activity

Mortgage rates have risen above 7% in April, impacting refinance activity in the housing market. As rates remain elevated, refinance potential continues to be challenging. However, there is a significant potential for refinance among Gen Xers and Millennials due to the dispersion in mortgage rates across generations. It is important to monitor this potential for future market movement.

Purchase originations

With mortgage rates expected to remain high through most of 2024, purchase originations may face challenges. However, high home prices could support modest growth in mortgage origination volumes. The combination of increased rates and limited inventory may limit the number of purchase originations. It will be crucial to monitor how these factors play out in the coming months to understand their impact on the market.

Mortgage interest rate dispersion by generation

Generation plays a significant role in determining mortgage rates and market activity. With Millennials and Gen Xers holding lower average rates but still possessing potential for refinancing, the housing market could see movement based on rate changes. Gen Xers may remain rate-locked for longer, while Millennials may drive purchase market activity due to life events and evolving housing needs. Monitoring the behavior of different generations will be key to understanding market dynamics in the future.

Generation Analysis

Millennials and Gen Xers: mortgage rates and refinance potential

For Millennials and Gen Xers, mortgage rates have remained low, offering potential for refinancing opportunities amid rising rates. While Millennials secured low rates through purchases, Gen Xers took advantage of refinancing during the low-rate period. Over 1.2 million borrowers from these generations hold rates above 7%, indicating a potential for refinancing to save on interest costs.

Gen Z: entering the housing market

With Gen Z entering the housing market when interest rates were high, their average rate stands at 4.9%. While facing challenges due to the current rate environment, Gen Z holds potential for refinancing as 13% of borrowers have rates above 7%. As first-time homebuyers, their behavior in the market will be crucial for future trends.

Housing Market Outlook

Inventory constraints

The housing market continues to face challenges due to inventory constraints. Tight inventory levels coupled with higher mortgage rates have resulted in a stagnant start to the year in terms of homeownership. The historical average homeownership rate remains at 65.2%, pointing towards limited supply for potential buyers.

Rate lock-in effect

The rate lock-in effect is influencing the current housing market dynamics. Many homeowners are hesitant to sell their homes and move to new ones due to historically low mortgage rates they secured in recent years. This rate lock-in has resulted in a lean inventory of existing homes for sale, impacting market churn and mobility.

To address the rate lock-in effect, potential shifts in homeowner behavior may occur. Younger generations, such as Millennials, are more likely to move regardless of their low mortgage rates as they transition through life stages. In contrast, older generations, like Gen Xers, may remain in their current homes for longer due to the benefits of low rates.

Demographic trends and housing demand

To understand housing demand, demographic trends play a crucial role. The different mortgage rates locked in by various generations will impact future housing market churn. Millennials and Gen Xers, with lower average rates, hold potential for refinance activity, while younger Millennials are likely to drive purchasing demand as they progress towards larger homes.

Risks and Challenges

Inflation and interest rate risks

An ongoing concern for the housing and mortgage market in May 2024 is the impact of inflation and rising interest rates. The core PCE price index increased 2.8% from a year ago, above the Federal Reserve target of 2.0%. This poses challenges for future Federal Reserve monetary policy and could lead to higher mortgage rates if inflation persists.

As a result, consumer spending behavior and credit performance may be negatively impacted, potentially slowing economic growth despite a resilient market thus far.

Housing supply and affordability concerns

For the US housing market in May 2024, a major risk lies in the limited inventory of homes available for sale and the upward pressure on house prices. The FHFA Purchase-Only Home Price Index increased by 1.2% month-over-month in February, reflecting strong year-over-year house price growth at 7.0%.

This trend, coupled with higher mortgage rates averaging 7.17% in April, presents significant challenges for both potential homebuyers and sellers, affecting overall housing market activity and affordability.

Summing up

With these considerations in mind, the May 2024 Housing & Mortgage Market Insights report provides a comprehensive analysis on the current state of the U.S. economy, housing market, and mortgage rates.

The report highlights the moderation in economic growth, the impact of high inflation on growth, rising mortgage rates, and the effects on home sales and construction. It also investigates into the implications of interest rate discrepancies across different generations and their impact on the housing market.

The outlook presented indicates a need for careful monitoring of interest rates, inflation, and demographics to navigate the housing market challenges ahead.

Frequently Asked Questions

Q: What is the current state of the U.S. economy in May 2024?

A: The U.S. economy has shown signs of moderation at the beginning of 2024, with economic growth slowing down and the labor market cooling. However, it continues to perform relatively well compared to other advanced economies.

Q: How are mortgage rates impacting the housing market?

A: Mortgage rates rose above 7% in April 2024, leading to a slowdown in the housing market. Home sales and new construction declined as a result of these higher rates.

Q: What is the outlook for mortgage rates in 2024?

A: The outlook suggests that mortgage rates are expected to remain elevated through most of 2024 due to higher interest rates. This could prompt prospective buyers to readjust their housing expectations.

Q: What are the implications of different mortgage rates across generations?

A: Different generations have locked in varying mortgage rates, with Millennials and Gen Xers having secured lower rates on average. This creates potential for refinance activity among these generations, especially among Gen Xers.

Q: What are the key challenges and opportunities in the U.S. housing market for 2024?

A: Challenges include tight inventory, high mortgage rates, and economic moderation. However, there are opportunities for continued housing demand due to favorable demographics, particularly in the starter home segment.

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