Housing Market Decoded: Can 2024 sales top 2023? Clock's ticking 

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.

Through the third quarter, sales of existing homes were tracking below last year's levels. Forecasters were optimistic for a strong 2024, but higher-for-longer mortgage rates and affordability challenges have subdued transactions. However, new pending sales were strong this fall, so it is possible that 2024 will end with more sales than last year.

But how strong of a fourth quarter do we need?

The numbers

According to the most recent numbers available from the National Association of Realtors, there have been 3.42 million existing home sales on a seasonally unadjusted basis (reflecting the raw number of sales each month) through October. The pace of home sales year-to-date in 2024 is running about 2% below 2023 levels.

Over the past 10 years, sales during the first three quarters of the year accounted for about 70% of total annual sales, and fourth-quarter sales accounted for 30%. In order to achieve levels equivalent to 2023, we would need to see about 1.02 million home sales between October and December. Fourth-quarter sales of that magnitude would be a 9% bump over the same period in 2023.

The explanation

At this time last year, all signs pointed to a busy housing market in 2024. Mortgage rates were projected to fall, and buyers who had been waiting on the sidelines were going to be out in full force.

But 2024 has ended up a disappointment so far. What went wrong?

The Federal Reserve delayed interest rate cuts. While inflation had been easing, progress stalled in early 2024. By the summer, inflation was still at or above three percent, and the Fed had still not cut interest rates. The Fed did not cut interest rates until September, and by then it was too late to give much of a jolt to the housing market.

Strong economic conditions and political uncertainty led to rising mortgage rates. Following the Fed rate cut in September, mortgage rates actually rose instead of falling, due to the strong economy and uncertainty around the presidential election. Buyers who were waiting for rates to come down in the fall were disappointed, and many decided to wait longer.

Rate lock kept sellers out of the market. Record-low mortgage rates during the pandemic enticed millions of people to buy homes and refinance existing mortgages. But when mortgage rates rose, the gap between the rate a new borrower could get and the average rate held by a current mortgage holder widened. Homeowners who might have wanted to sell their home were "locked" in place by their much lower rate, keeping inventory and sales lower.

Affordability was a major constraint in 2024. Record-high home prices and rising mortgage rates increased affordability challenges, particularly among first-time and moderate-income buyers. Even with a dip in interest rates, many prospective buyers were still priced out, which kept home sales activity low.

It is still possible that overall home sales in 2024 will match — or even exceed — 2023 levels. The number of pending sales in September was up a robust 7.4% nationally. Local markets have seen an even bigger bump. Across the Mid-Atlantic, new pending sales were up almost 9% year-over-year in October.

If those new contracts convert to closed sales, we could end the year with strong sales activity. But a drop in mortgage rates in the last few weeks of the year may be what's needed to push 2024 totals over the threshold.

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.