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Overview
Recent developments in the housing market offer an optimistic outlook for the coming months. In anticipation of the Federal Reserve's rate cut, mortgage rates fell below 6.4% by the end of August. The combination of lower mortgage rates, along with a steadily increasing inventory, is expected to boost sales soon. Notably, pending home sales, a leading indicator of future home sales transactions - rose this month, signaling improvements in housing affordability and a positive response from buyers to lower borrowing costs. Median home prices have also increased and are expected to continue rising as mortgage rates decline.
What's especially notable is the steady improvement in housing inventory since the beginning of the year. With construction jobs increasing at a rate higher than the average monthly gain over the past 12 months, the market is experiencing more building permits and housing starts. This trend is expected to further enhance housing affordability. However, it will take several years for the housing supply to align with job growth and overall market demand.
Inflation reached 2.5%, edging closer to the Federal Reserve's target rate of 2%. As the market transitions out of summer, the 10-year Treasury yield and mortgage rates are laying the groundwork for rate cuts in the Federal Funds Rate in the following months. Overall, with an increase in housing supply and favorable borrowing conditions, the market is expected to attract more home buyers this fall.
The Federal Reserve maintained its short-term interest rate at 5.5% in August 2024, unchanged since August 2023. With inflation edging closer to the 2% average target, the Federal Reserve is expected to cut its rates multiple times in the coming months.
The U.S. labor market rose by 142,000 in August. The increase was in line with average job growth in recent months but was below the average monthly gain of 202,000 over the past 12 months. Construction employment rose by 34,000, higher than the average monthly gain of 19,000 over the prior 12 months.
Inventory has been consistently increasing since the beginning of the year. In August, total housing inventory was 1.35 million units, up 0.7% from last month. Compared to August 2023, inventory levels were up 22.7%.
