The housing market has shown promising signs, with Zillow reporting its strongest October in three years. Inventory levels are starting to recover from record lows, contributing to a more balanced marketplace. This past month marked a 5% increase in both new listings and pending sales compared to last year.
Despite ongoing affordability challenges for buyers, Zillow indicates that the national housing market is becoming increasingly favorable for buyers. Notably, three new major markets transitioned into buyers’ markets in October, bringing the total to 19 major markets now favoring buyers, an increase of nine from the previous year.
Housing market analyst Jeff Ostrowski from Bankrate commented on the report’s optimistic outlook but cautioned that the market has not fully rebounded. Existing home sales are still hovering around an annual pace of 4 million, constrained by high property prices and elevated mortgage rates. The so-called “lock-in effect” keeps many sellers reluctant to enter the market, as they fear trading their lower 3% mortgage rates for current rates exceeding 6%. This reluctance has further limited choice for buyers already facing rising costs.
Ostrowski noted that a healthy housing market would typically see around 6 million annual home sales, and the current scenario indicates a potential for improvement simply due to the bleak conditions experienced over the last few years. Recently, mortgage rates have seen a decline, with the average 30-year fixed-rate mortgage at 6.27% in mid-October – down from 6.44% this time last year and significantly down from 7.63% two years prior.
Zillow’s report also reveals a slight uptick in home values, with the typical U.S. home now valued at $362,117, an increase of just 0.1% from last October. While home prices continue to climb, the increase has slowed, with some markets even seeing price reductions. Ostrowski expressed hope that the combination of decreased mortgage rates and moderated price rises may lead to revitalized market activity.
Looking ahead, the National Association of Realtors (NAR) predicts a 14% increase in home sales next year, alongside a 4% rise in home prices. This potential uptick in market activity could be especially beneficial for first-time buyers, who have faced significant hurdles to enter the market. A recent NAR report highlighted that the average age of a first-time homebuyer has now risen to 40, an increase from 30 fifteen years ago.
Jessica Lautz, NAR’s deputy chief economist, has previously noted that these challenges can result in generational economic impacts for younger buyers, leading to lost opportunities for housing wealth gains and slowed wealth accumulation that could affect future generations.
Zillow has reported an improvement in housing inventory, with the shortfall now reduced to about 17%, a significant recovery from the 51% shortfall recorded in February 2022. Total inventory has grown nearly 13% since last year, marking the smallest supply deficit since the pandemic began. Furthermore, affordability for homebuyers reached a three-year high, as a median-earning family making a 20% down payment would need to allocate 32.9% of their income toward a mortgage for a typical home, the lowest percentage required since August 2022.
While this represents some progress, it still exceeds the recommended 30% threshold to ensure homeowners are not financially burdened. The challenge of saving a 20% down payment remains a significant barrier for many prospective buyers, underscoring the need for continued efforts to enhance affordability and access within the housing market.