Home sales rally — but that may not last as rates rise 

The housing market picked up steam in November, but rising mortgage rates may send it back into a winter slumber.

Existing home sales experienced a rebound last month, rising 4.8% from October and increasing 6.1% year-over-year  — the largest annual gain in more than four years, according to the latest data from the National Association of Realtors.

The seasonally adjusted annual rate of sales was 4.15 million in November, the fastest pace since March and well above October's level of 3.96 million.

The sales boost followed the presidential election — whose uncertain outcome previously caused some buyers to pause their home search — and came at a time when mortgage rates were elevated but relatively stable. 

'Higher for longer' mortgage rates move closer to 7%

Rates are on the rise again, however, following the Federal Reserve's Dec. 18 meeting. The Fed cut interest rates by 25 basis points but also scaled back plans for 2025, indicating it may only make two cuts next year on the expectation that inflation will be higher. 

In the hours after the Fed's announcement, mortgage rates went up, and the stock market dropped by more than 1,100 points. Mortgage News Daily reported 30-year mortgage rates jumped to 7.14% on Dec. 19.

"In short, the takeaway continues to be that rates can't move meaningfully lower without a meaningful drop in inflation," Matthew Graham, Mortgage News Daily's COO, said in an online post.

Mortgage rates were already moving up prior to the Fed's announcement. Freddie Mac's weekly survey, which uses different metrics, pegged the 30-year fixed-rate mortgage at 6.72% for the week, up from 6.6% a week ago. The 15-year fixed-rate also rose, averaging 5.92% this week.

The combination of sticky inflation and a strong labor market means "mortgage rates could remain higher for longer through 2025," said Lisa Sturtevant, chief economist at Bright MLS.

With rates rising again, mortgage applications are starting to slow, according to the Mortgage Bankers Association. The unadjusted purchase index was down 2% for the week but up 6% compared to the same week last year.

Even so, some of that energy from November remains in place. Redfin reports new listings for homes are up 7.6% year-over-year as sellers look to tap into late-season demand. Active listings are also 11.6% higher than a year ago, but remain well below pre-pandemic levels.

More on existing sales

The November sales rally came in spite of a 4.7% year-over-year increase in home prices, NAR reported. The median existing home price was $406,100 and marked the 17th consecutive month of year-over-year price increases.

While down from October, supply was at 3.8 months, up from 3.5 months in November 2023.

Regionally, the West had the biggest year-over-year jump in existing sales, which rose 14.9%. The Northwest was up 6.3% year-over-year, followed by the Midwest (up 5.3%) and the South (up 3.3%).

New construction data lukewarm

On Wednesday, the U.S. Census Bureau announced that while overall housing starts were down, groundbreaking for single-family homes rose 6.4% between October and November (but were down year-over-year).

Other signs of strength in the new home market were housing permits, which came in above industry expectations, and a bump in single-family home completions. Builders are also more confident about sales prospects in the new year as they expect to see regulatory relief under a new administration.

"Despite the persistence of 'higher-for-longer' mortgage rates, the housing market remains underbuilt in many parts of the country," said Odeta Kushi, deputy chief economist at First American. "The new-home market remains poised to outperform the existing-home market because builders have inventory to sell and are willing to offer incentives, such as mortgage rate buydowns to attract buyers."