Housing Market Decoded: 3 factors that could affect summer home sales 

Decisions in residential real estate are often based on market data — sometimes conflicting, often confusing. Housing Market Decoded, authored by economists and other market experts, helps put the data in context so you can make sense of the numbers.

Over the past four years, it has been nearly impossible to predict where the housing market is going. We are operating under a new normal with shifting market conditions and changing rules. Home sales activity was strong heading into spring, with prices rising faster than they have in more than a year.

But what should we be watching as we head into summer? Here are three questions on the minds of consumers and real estate professionals alike.

Will there be more inventory?

Yes.

A lack of inventory has been a major constraint on the housing market. Home sales were at a 30-year low in 2023, not because of a lack of interested buyers, but because there were so few homes for sale.

It has been widely reported that inventory is so low because existing homeowners are "locked in" by low mortgage rates. After all, who would want to sell their home when they have to trade a sub-3% mortgage rate for one close to 7%?

But the homebuying and selling process is not solely a financial decision. Family reasons are the number one reason people move — people getting married or divorced, families having children, older adults needing care. These "life happens" events will bring more inventory onto the market this summer.

We're already seeing inventory track higher than last year. Unlike in 2021, 2022 and 2023, inventory has been rising throughout the spring, driven by more new listings activity.

Will mortgage rates fall?

Yes — but not much.

At the end of 2023, there were expectations that mortgage rates would fall steadily throughout 2024, with some forecasts predicting rates back down near 5%. Instead, we're seeing rates hover close to 7% this spring, and it is likely they will continue to be in the mid-6's or higher throughout the summer.

Mortgage rates are elevated for at least a couple of reasons. The Federal Reserve is pushing off rate cuts that had been expected in early 2024. Strong economic data and persistent inflation mean that the first set of cuts probably will not happen until the second half of 2024.

Rates also remain relatively high because the federal government has to issue more bonds to pay interest on the record-high national debt. Those bonds need to have a higher interest rate to attract investors. Mortgage rates track closely with yields on government bonds, which means mortgage rates will stay higher for longer.

Some prospective buyers — and sellers — may be waiting for mortgage rates to fall, but no one should hold their breath for a big drop this summer. Mortgage rates in the mid-to-upper sixes are the new normal for now.

Will the NAR settlement impact the market this summer?

Maybe?

On March 15, the National Association of Realtors reached a proposed settlement to end the litigation against NAR and many brokers, associations, and MLSs. The agreement would resolve nearly all of the lawsuits, in exchange for NAR paying hundreds of millions of dollars and requiring brokers, agents, and MLSs to adopt new practices.

The details of the settlement have been widely reported in the media — and consumers have been taking notice.

There will be homebuyers who will wait until after changes in the proposed settlement go into effect late summer, some of them mistakenly thinking there will be a big drop in home prices. However, recent research shows there is no link between buyer agent commissions and home prices that would suggest prices will come down.

On the other hand, uncertainty about prospective changes in the industry could lead other buyers to advance their home search. As a result, we could see a busy late spring and early summer market.

There is still a lot of uncertainty in the market, but the best way to gauge where it is headed is to watch inventory, track rates, and pay attention to how consumers are feeling.

Dr. Lisa Sturtevant has been involved in research on economic, demographic and housing market issues for more than 20 years. She is currently Chief Economist at Bright MLS, where she leads research and forecast activities for Bright and serves as a thought leader on the housing market. The views expressed in this column are solely those of the author.