Housing Market Gains Momentum, But 2024 Marks Lowest Home Sales in Three Decades

Weekly Economic Review: January 24, 2025

Monthly existing home sales and home prices increased in December, but for full-year 2024, existing home sales hit their lowest level in three decades

Last week was light in terms of economic data announcements, but the market was busy analyzing the likelihood, extent, and timing of President Trump’s potential tariffs. Thus far it appears that Trump is taking a soft stance on tariffs on China but a tougher stance with the Federal Reserve on lowering interest rates. One important economic data point for consumers released last week was existing home sales.

Existing home sales advanced in December for the third straight month and by the most since February, even though home sales tend to be slower in the winter compared to the busier spring and summer seasons. The third consecutive increase in monthly sales suggests that both home-owners and buyers have accepted the reality of today’s high mortgage rates. The strong labor market and wage increases have also boosted the positive momentum of the housing market.

Housing inventory decreased slightly in December, which is typical at year-end, and remained well below pre-pandemic levels. Home prices continued to climb to levels unaffordable for most first-time homebuyers, marking the 18th consecutive month of year-over-year price gains. The in-crease in home prices was partly attributable to a 35% annual increase in the upper-end market. A more detailed analysis of the existing home sales data follows.

Existing Home Sales: According to the National Association of Realtors, sales of existing homes increased by 2.2% to an annualized rate of 4.24 million units in December from 4.15 million units in November. This was higher than the expected gain of 1.2%. On an annual basis, sales advanced 9.3% from 3.88 million units a year ago.

All four major U.S. regions except for the Midwest posted sales increases in December. In the West, sales rose 2.6% in December to an annual rate of 790,000, an increase of 12.9% from a year earlier. The median sales price for all four regions increased by 6.0% from a year ago to $404,400, marking the 18th consecutive month of year-over-year price gains. The median price in the West was $614,500, up by 6.0% from a year ago.

The inventory of unsold existing homes for sale decreased by 13.5% to 1.15 million in December, still well below the 1.9 million pre-pandemic level but up 16.2% from a year earlier. The Months Supply of Inventory (MSI), measuring the number of months it would take for the current inventory of homes on the market to sell at the current sales pace, was 3.3 months in December, down from 3.8 months in November but up from 3.1 months year-over-year. A four-to-seven-month supply is considered a healthy balance between supply and demand.

In December, first-time homebuyers accounted for 31% of sales, up from 30% in the prior month and from 29% year-over-year. All-cash sales made up 28% of purchases, up from 25% in November but down from 29% a year ago. 53% of the homes sold were on the market for less than a month, unchanged from the prior month. Homes stayed on the market for an average of 35 days in December, up from 32 days in November and 29 days a year ago.

On a concluding note, for all of 2024, existing home sales declined to their lowest level since 1995, marking the third straight annual decline. This was mainly driven by high mortgage rates, high home prices, and low inventory. While the third consecutive monthly increase in existing home sales shows strong momentum entering 2025, it appears that the three headwinds will continue well into the new year. Ac-cording to Freddie Mac, the average 30-year fixed-rate mortgage rate declined to 6.96% as of January 23, 2025, which was down from 7.04% one week ago and its first decline in six weeks.

The market is now pricing in a 100% probability of a 0.25% rate cut by the June FOMC meeting and a 68% chance of another 0.25% rate cut later in 2025, which was a 51% chance a week ago. Compared to a week ago, the Treasury yield curve remained virtually unchanged, with the two, five, and ten-year Treasury yields ending at 4.27%, 4.43%, and 4.63%, respectively.

Looking ahead, the Fed’s January rate announcement and press conference is scheduled for this Wednesday, with the expectation that the Fed will hold rates steady at the current range of 4.25 to 4.5%. On Thursday, the preliminary Q4 GDP report will be released; the market expectation is a GDP increase of 2.6%, versus GDP growth of 3.1% in the third quarter. The Atlanta Fed’s GDPNow model projects GDP growth of 3.0% in the fourth quarter.

The last key economic report to be announced this week is Friday’s release of the Personal Consumption Expenditure (PCE) price index (which is the Fed’s preferred inflation measure), personal income, and personal spending. The headline PCE price index is expected to rise 0.3% in December and 2.5% year-over-year. Also, excluding food and energy, the core PCE is expected to rise 0.2% in December and 2.8% on an annual basis. Personal income is expected to grow by 0.3% in December and 5.3% year-over-year. Personal consumption is projected to increase by 0.5% in December and 5.2% annually.

Mark Yoon, CFA CPA
EVP & CFO of Commercial Bank of California

Thomas McCullough
EVP of Commercial Bank of California

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