Existing home sales in 2024 were the slowest in decades amid high mortgage rates

High interest rates kept U.S. home sales in a deep freeze for much of last year. It could be a while before the market experiences much of a thaw.

Americans purchased just over four million previously owned homes last year, the National Association of Realtors reported Friday. It was the fewest since 1995 and well below the annual pace of around five million that was typical of the coronavirus pandemic.

Sales increased slightly towards the end of the year, up 9.3% in December compared to the previous year. That increase likely reflected falling mortgage rates in the summer and early fall — to about 6 percent on average for a 30-year fixed-rate mortgage — which made homes more affordable for buyers.

But mortgage rates have since rebounded to around 7%, and most forecasters don’t expect them to fall much in the coming months. That makes for a significant increase in home sales this year, said Charlie Dougherty, an economist at Wells Fargo.

“You’ve seen sales start to pick up a little bit, but it’s still slow,” he said. “I don’t think it’s indicative of a really forceful or forceful recovery that’s going to come.”

Home prices have soared during the pandemic as Americans have sought more space and rock-bottom interest rates have made borrowing easier. Real estate agents recounted free-for-all bidding wars as buyers competed for available homes.

That frenzy came to a sudden halt when rapidly rising inflation led the Federal Reserve to raise interest rates to their highest level in decades. Interest rates on a 30-year fixed-rate mortgage have jumped, from less than 3% at the end of 2021 to almost 8% two years later.

The combination of high prices and high interest rates made the homes many were looking to purchase unaffordable. And homeowners, many of whom had bought their homes or refinanced their mortgages when rates were low, had little incentive to sell. This kept inventories low and prices high.

There are hints that the housing market may gradually return to normal, as life events – new jobs, new babies, marriages, divorces – force homeowners to sell and, as buyers adjust to higher borrowing costs. Inventory has increased and surveys show more owners plan to sell.

But unless mortgage rates fall, that normalization process is likely to be slow, Mr. Dougherty said.

“I think it’s probably safe to say that home sales have found a floor,” he said. But, he added, “If you look at the overall level, it’s still very, very low.”