Housing Market Still Strong Despite High Rates

Zillow Single-Family Home Value Index

_{Source: Zillow, Goldman Sachs Global Investment Research}

Year-over-year, pending home sales (when the sale contract has been signed but the transaction is yet to be completed) improved 6.9% in November, according to the National Association of Realtors. New single-family home sales were 14% above the 2015-2019 average on a rolling 3-month basis and also up 2% year over year, according to Goldman Sachs Research.

About 25% of homes were taken off market within 2 weeks in December, which is slightly above 24% in the same month in 2019. The duration it takes to sell a property is nine days less than the same week in 2019, according to Realtor.com.

Even though strong employment and rising wages along with limited housing supply should help drive home sales, affordability is still constrained. Mortgage purchase applications were down 3% year over year in late December, as homebuyers may not see as many rate cuts as previously expected.

Goldman Sachs Research economists pushed back their forecast to just two fed fund rate cuts in 2025 (from the previous three cuts).

While the direction of the housing market is still uncertain in the near-term, Goldman Sachs Research sees potential for greater activity into the home selling season.

New home constructions may relieve tight housing inventory

Some relief may come as new constructions could help alleviate supply tightness in the market. On a trailing 12-month basis, single-family home permits rose 6% year over year in December compared to a 5% decline a year ago. The increase in permits comes as homebuilders prepare for the upcoming selling season with large public companies seeking to take market share from smaller private builders and the existing home resale market.

Goldman Sachs Research notes that homebuilders are continuing to take advantage of new construction incentives and that there has been an increase in rate buydowns (a mortgage financing option that allows a borrower to pay an upfront fee to get a lower interest rate for a set period of time) in the last three months.

These activities may be fueling the market as new construction in November outperformed resale of existing homes relative to their respective long-term averages. Goldman Sachs Research expects that with mortgage rates around 7%, resales will likely remain weaker and may continue pushing incremental buyers to new constructions.

The most and least affordable housing markets

Goldman Sachs Research highlights the following four most and least affordable housing markets for the third quarter of 2024 according to the National Association of Home Builders’ Cost of Housing Index.

The lists are ranked by the portion of a median family’s income needed for a mortgage payment on a median-priced home in the area:

Most affordable housing markets

1. Indianapolis – 28%
2. Minneapolis – 28%
3. Atlanta – 31%
4. Nashville – 33%

Least affordable housing markets

1. Miami – 63%
2. Riverside – 51%
3. Las Vegas – 45%
4. North Port-Sarasota – 43%