Wall Street analysts had hoped the housing market would show signs of life in 2024. Instead, it remained stagnant.
The reason is largely tied to mortgage rates' bumpy path this year alongside low supply and record home prices. In January, the average 30-year fixed mortgage rate was hovering around 6.6%, according to Freddie Mac .
Now, despite ups and downs, the rate is hovering around the same level . It was 6.72% in the week through Wednesday, compared with 6.6% a week earlier, according to Freddie Mac data .
Since the cost of borrowing hasn't gotten any cheaper, it hasn't triggered any significant movement in buying and selling activity. In fact, sales of previously owned homes are poised to set the record for the worst year since 1995 for the second year in a row.
“I was thinking that this year we would see the housing market freeze begin to thaw, and see some more activity,” Jeff Tucker, principal economist at Windermere Real Estate, told Yahoo Finance in an interview. “It didn't quite pan out that way.”
Read more: When will mortgage rates go down? A look at 2025.
A rocky start
Housing activity had a rocky start this year. Mortgage rates, which had been falling to end 2023, plateaued and then began to rise again in February, with the average 30-year rate reaching 6.77% by the middle of the month, per Freddie Mac data.
The spike in rates followed a stronger-than-expected January jobs report and comments made by Federal Reserve Chair Jerome Powell in early February that the Fed would need to see more progress on inflation before bringing borrowing costs down. The Fed doesn't control mortgage rates, but its actions do influence them through movements in bond yields.
Rising home prices further compounded the pressures of rising rates. The median existing home sales price jumped 5.7% compared to February last year, marking the eighth consecutive month of year-over-year price gains, according to the National Association of Realtors (NAR).
High home prices priced out many budget-conscious buyers. Pending home sales, a forward-looking indicator of home sales based on contract signings, dropped 7% year over year in February.
Still, there were reasons for optimism. Data from Redfin showed that new listings climbed 10% year over year during the four weeks ending Feb. 18, the biggest increase in two months, as homeowners took advantage of the rising home prices.
“Inventory did improve from rock bottom, but remained limited in many markets, sales activity was weak, and mortgage rates had a bumpy ride,” Ali Wolf, chief economist at Zonda, told Yahoo Finance.
As spring approached, more house hunters were actively exploring and submitting loan applications .
Despite the early stage of buying activity, it didn’t lead to an increase in sales. Existing home sales sank 4.3% in March to a seasonally adjusted annual rate of 4.19 million, per NAR. Mortgage rates remained elevated near 7% , further contributing to the slowdown.
"A lot of people were surprised that home prices did not go down as mortgage rates went up. This showed us that the supply and demand imbalance was more powerful than the borrowing costs," Wolf said.
By summer, mortgage rates changed course and began to decline as new data showed that inflation was slowing. In June, the Fed held interest rates steady and projected a single rate cut for the year.
That still wasn’t enough to push some prospective homebuyers off the sidelines, with high costs remaining a major obstacle. Data from the National Association of Realtors showed sales of existing homes slumped 5.4% from the previous year in June, while the median sales price reached $426,900, marking a record high for the second consecutive month.
Expensive housing costs "threw some cold water on homebuyers who were hoping for a real turnaround in conditions," Tucker said.
Playing the waiting game
In September, mortgage rates fell more than half a percentage point over a six-week period as investors priced in interest rate cuts from the Fed, starting during the month and continuing through 2025.
But sales didn’t improve because many would-be buyers and sellers who were locked into historically low borrowing costs were playing the waiting game. Existing home sales fell to the lowest level since 2010 during the month of September, per NAR.
House hunters were hoping mortgage rates would drop further once the Fed cut interest rates to get serious about buying. The Federal Reserve cut its benchmark rate by half a percentage point on Sept. 18. But many economists warned that mortgage rates were unlikely to fall much further.
In fact, mortgage rates started to rise, moving closer to 6.5% in October, as markets adjusted their expectations about the scope and timing of future Federal Reserve rate cuts.
"Historically, mortgage rates move in tandem with Fed rate changes," Wolf said. "This year, however, mortgage rates actually went up after the Fed cut rates. This is because investors ultimately drive mortgage rates, and they are taking in other economic data and policy proposals and allocating their funds accordingly."
As 2024 comes to a close, the rate path looks uncertain. At its December policy meeting, the Fed projected two rate cuts for next year, down from a previous forecast of four. Investors remain concerned about sticky inflation data and the potential impact of the incoming Trump administration's policies on price increases.
Read more: How the Federal Reserve rate decision affects mortgage rates
Analysts have said they believe that housing activity will pick up in 2025 as more homes hit the market with buyers and sellers adjusting to the reality of today’s higher interest rates.
In one encouraging sign, existing home sales for November were up 6.1% from a year ago, the largest year-over-year gain since June 2021, according to NAR.
“We think it’s going to continue to be a slow climb out,” Danielle Hale, chief economist at Realtor.com, told Yahoo Finance's Claire Boston.
@daniromerotv .