Slower price growth offers little relief due to tight supply and high costs
Home price growth has shown signs of slowing down, but that doesn’t mean it’s any easier for buyers.
Single-family home prices increased by 5.9% from Q3 2023 to Q3 2024, a slight deceleration from the previous quarter’s 6.4% annual growth rate, according to the Fannie Mae Home Price Index (FNM-HPI).
Although price growth is slowing, the market remained highly constrained by low inventory and high home prices, creating continued affordability challenges, Fannie Mae chief economist Mark Palim said.
On a seasonally adjusted quarterly basis, home prices rose by 1.3% in Q3 2024, down slightly from 1.4% in Q2 2024. Non-seasonally adjusted growth came in at 0.9% for the quarter.
“Even though mortgage rates fell precipitously in the third quarter, and we saw some improvements to the months’ supply of homes for sale, home purchase activity barely budged – at least on a national basis – which we view as evidence that the market remains significantly constrained by both the ‘lock-in effect’ and affordability generally, but especially elevated home prices,” Palim said in the report.
Homeowners who secured low mortgage rates in previous years are reluctant to sell their homes and take on higher borrowing costs with current mortgage rates, which are significantly higher than in the past. As a result, fewer homes are hitting the market, further restricting supply.
At the same time, affordability remains a key issue. Despite some relief in mortgage rates during Q3, many buyers are finding themselves priced out due to persistently high home prices.
“In fact, consumers have told us as much: In September, high home prices supplanted high mortgage rates as the top reason for our survey respondents’ overwhelming pessimism toward homebuying conditions,” Palim added.
Read more: Mortgage market poised for growth as buyer sentiment improves
This combination of tight supply and affordability concerns is making it tough for the housing market to regain balance. Even though price growth is decelerating, buyers are still grappling with high costs, while sellers are reluctant to put their homes on the market.
“Overall, the strength of this latest home price reading confirms the ongoing challenges with tight supply; however, the index’s continued deceleration shows that we’re slowly moving toward a better balance between supply and demand,” Palim said.
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