December 2024 Housing Market: Sales Rise While Inventory Remains Tight
The December 2024 Housing Market experienced a modest but notable increase in sales of existing homes, reaching the highest level since February. Sales were 9% higher than a year ago, signaling some resilience despite ongoing challenges in affordability and inventory. The median existing-home price climbed to $404,400, reflecting a 6% increase compared to the previous year. While this uptick in sales is encouraging, the market remains constrained by historically low inventory levels, which stood at just a 3.3-month supply nationally—far below the six-month supply typical of a balanced market. However, there was a silver lining: inventory levels were 16% higher than a year ago, offering some hope for prospective buyers.
Limited Inventory Continues to Challenge the Market
One of the biggest ongoing challenges in the December 2024 Housing Market is the limited supply of available homes. Despite a modest increase in inventory over the past year, many regions still struggle with a shortage of homes, particularly in the lower price ranges. This lack of supply continues to drive up prices and intensify competition among buyers. The constrained inventory has also put pressure on affordability, as rising home prices combined with fluctuating mortgage rates make homeownership less attainable for many first-time buyers.
A balanced market typically requires a six-month supply of homes, meaning that at the current pace of sales, it would take six months to exhaust available inventory. However, at just 3.3 months, the supply remains well below this threshold. This imbalance continues to favor sellers, keeping upward pressure on home prices despite efforts to cool inflation and stabilize borrowing costs.
Housing Starts Surge, Led by Multi-Family Construction
While the existing home market struggles with inventory constraints, the latest home-building data provided some unexpected optimism. Housing starts in December jumped 16% from November, marking the highest level since February 2024. However, the surge was largely driven by the volatile multi-family sector, which saw an extraordinary 58% increase. In contrast, single-family starts rose by just 3%, and single-family building permits, a key indicator of future construction, saw only a slight increase.
The disparity between multi-family and single-family construction suggests that builders remain cautious in ramping up single-family home production. Rising construction costs, labor shortages, and economic uncertainty have made developers more hesitant to take on large-scale single-family projects. Instead, the focus has shifted toward multi-family developments, which can provide more housing units in a shorter time frame. While this helps address rental housing shortages, it does little to ease the inventory crunch for those looking to buy single-family homes.
Builder Sentiment Remains Steady
The latest survey from the National Association of Home Builders (NAHB) provided further insights into market conditions. Builder sentiment came in close to expectations, reflecting cautious optimism about future demand. Many builders remain hopeful that interest rates will stabilize or decrease, allowing more buyers to enter the market. However, they also acknowledge the persistent challenges of high construction costs, zoning restrictions, and labor shortages, which continue to limit the pace of new home construction.
Mortgage Applications Show Mixed Results
In another sign of shifting market dynamics, mortgage application data from the Mortgage Bankers Association (MBA) presented a mixed picture. Applications to refinance mortgages fell by 3% from the previous week but were an impressive 42% higher than one year ago. The substantial year-over-year increase suggests that some homeowners are taking advantage of recent rate fluctuations to refinance at more favorable terms.
Meanwhile, purchase applications rose by 1% from the prior week and were slightly higher than last year at this time. This modest increase in purchase applications indicates that homebuyer demand remains relatively stable despite affordability concerns. The slight improvement may also reflect expectations that mortgage rates will ease further in the coming months, encouraging more buyers to enter the market.
Looking Ahead: What to Expect in 2025
As the housing market enters 2025, several key factors will shape its trajectory:
Mortgage Rates: The Federal Reserve’s policies and broader economic conditions will influence mortgage rates, which remain a critical factor in home affordability. A decline in rates could stimulate more demand and make homeownership more accessible.
Inventory Growth: While the year-over-year increase in inventory is a positive development, more supply is needed—particularly in the entry-level market. If single-family home construction picks up, it could help alleviate some of the pressure on prices.
Economic Conditions: Inflation, employment trends, and overall economic stability will play a significant role in determining housing demand. A strong job market and wage growth could support continued buyer activity.
Home Prices: With supply still constrained, home prices are likely to remain elevated. However, any increase in inventory or a slowdown in demand could moderate price growth over time.
The December 2024 Housing Market data provides a snapshot of a housing market that remains in transition. While sales of existing homes showed resilience, inventory remains a challenge, and the surge in housing starts was largely driven by multi-family construction rather than much-needed single-family homes. Mortgage application trends suggest some optimism, but affordability remains a key concern. As 2025 unfolds, the interplay of these factors will determine how the housing market evolves in the months ahead.
For further information on the Chicagoland real estate market, contact the title insurance and escrow specialists at Plymouth Title Guaranty Corporation.
