Five things homebuyers can be thankful for this Thanksgiving

Although housing market conditions remain a challenge, there are still a number of things that homebuyers can be thankful for this year. Here are five of them to consider:

Housing market conditions turning a bit

While the "seller's market" for homes still continues apace, it's starting to look as though the issues of spiraling home prices amid ultra-thin inventories of homes to buy may be starting to ease just a little. Sales of existing homes have been lumbering along at a sluggish pace for months, but seem poised to improve a bit in late fall, as a drop in mortgage rates in September spurred a jump in signed contracts.

While it is true that mortgage rates have declined appreciably from peak 2023 levels. it's also true that they only plumbed multi-year depths for a short while before backing up again this fall. Still, as we write this, 30-year fixed mortgage rates are still a half percentage point below 2024's high point, and the brief drop to nearly 6% in early fall is likely a preview for what's to come for the spring homebuying season. Last year at this time, mortgage rates were storming up to about 20-year highs; this year, although still high, they are well below those lofty levels.

The number of homes available to buy has been steadily improving, not just on an inventory-to-sales ratio basis (which at 4.2 months of supply is close to the highest it has been in five years) and also not simply due to a tepid pace for sales. The National Association of Realtors also reported that in October 2024, the number of homes available to buy was actually 1.37 million units, up 19.1% from one year ago (1.15 million).

Houses also aren't being snapped up as quickly when they do come on market, either. The NAR noted that for-sale properties typically remained on the market for 29 days in October 2024, up from 23 days in October 2023. This means a less-frenzied, gotta-make-a-decision-now kind of market, so potential homebuyers may have some additional time to consider their choices more carefully.

All this said, home affordability is still issue #1. Existing home prices hit new record highs over the summer, but potential homebuyers this fall and this winter should find seasonally-lower costs. In fact, the median price of an existing home sold in October (latest month available) was already 4.6% below the June 2024 record peak of $426,900. Seasonally-lower home prices can help improve affordability a bit, even if mortgage rates are little better than they were during the peak market season this year.

While just seven of the nation's top 50 metropolitan housing markets saw year-over-year price declines in the third quarter, 32 of them did see seasonally lower home prices during the quarter compared against the second quarter. This is the largest number of third quarter declines in two years and 68% higher than one year ago. If the history before the pandemic era is any guide, we'd expect to see perhaps 80%-90% of metros sporting even lower median prices in the fourth quarter compared to the third, which should mean some lower cost opportunities for homebuyers, provided mortgage rates cooperate. You can track what's happening with home affordability in our Income you need to afford a median-priced home in the top 50 metro areas.

Affording a home remains a challenge, but it may be that rising wages, low-ish mortgage rates and seasonally-lower home prices will start to rebalance the housing market as 2024 comes to a close.

A growing economy

While it may only be able to be seen in hindsight, it just may be that the U.S. economy is actually enjoying a "soft landing". The sharp economic decline of the pandemic broke the nation's longest continuous economic expansion, and the recovery was uneven -- strong at times, weak at others -- but the economy has managed solid continuous growth now for the last eight quarters. Over that time, annualized quarterly GDP growth has been no slower than 1.6% and no faster than 4.4%, and the most recent two quarters of 2024 have been a solid and above-potential 3% and 2.8%, respectively.

This growth has been achieved despite high short-term interest rates, and has featured moderating inflation. For a time, real incomes were being outstripped by rising prices but this has come into better balance as wages have continued to rise while price increases have moderated. Make no mistake, though -- costs are still very elevated for many things compared to where they were pre-pandemic -- but smaller new increases in costs aren't adding much additional pain, at least in the aggregate.

As well, the job market remains remarkably solid. While it is true that the unemployment rate has risen from its 3.4% bottom, the current 4.1% is still considered historically low. New job openings have fallen and hiring has slowed, but layoffs remain low and wage gains have been catching up to price increases again.

The flip side of a still-growing economy is that it may yet be fostering inflationary pressures. While inflation may not be poised to rise from present levels, underlying firmness in costs may prevent it from declining as quickly as hoped. In turn, this helps keep longer-term interest rates and mortgage rates more elevated than they might otherwise be.

Of course, that's the trade-off. The lowest mortgage rates usually occur in the worst economic climates, and at least in recent economic cycles, only when the Fed has used extraordinary measures to lower mortgage rates. It's worth considering that while desirable, rock-bottom mortgage rates are essentially useless when you don't have a job and can't qualify for a mortgage to buy a home.

That labor market conditions are still solid and wages on the rise are at least two things to be thankful for, as these are the foundations on which the ability to buy a home is built.

The Fed's steady hand

While the political climate in the U.S. is and has been fractious and often dysfunctional at times, the Federal Reserve has mostly been quietly on point. While arguments can be made that the Fed had a role in inflation flaring as high as it did, profligate fiscal spending was likely more the catalyst. While the Fed may have underestimated the strength and length of the surge in prices, any trend will generally prove "transitory" given enough time.

Still, it's also true that the Fed acted swiftly and decisively in raising rates and starting the process of shrinking its balance sheet, serving to lift interest rates and tighten financial conditions quickly to help damp price pressures. With core PCE inflation down to about half its peak level, the Fed has begun the process of normalizing short-term interest rates, beginning the new monetary policy cycle with a large 50 basis point decrease in September, and following it up with another quarter-point cut in early November.

If nothing else, the Fed has been consistent in its messaging and approach toward inflation and economic risks. Despite high interest rates for several years now, the Fed's approach has helped asset values to rise, as both savers and investors have been able to grow their holdings. This has helped plump up investment and retirement accounts for millions of Americans, some of whom will use these gains to fund downpayments to buy a home.

While the new cycle of lower policy rates will probably only happen at a more measured pace going forward, the prospects for lower interest rates next year are pretty strong. Provided inflation resumes its trend toward the Fed's goal, lower mortgage rates will likely be in place for the 2025 spring homebuying season.

Slightly looser mortgage standards

No homebuyer in recent years would call the process of getting a mortgage anything but rigorous. That's not likely to change much, and certainly we're in no danger of seeing the kind of lending conditions that contributed to the last housing boom and bust. In mortgage lending, it is often true that desperation (aka weak loan volume) breeds innovation, but the effects of the Dodd-Frank law, implementation of Qualified Mortgage (QM) and Ability to Repay (ATR) standards and more have meant little of this during this soft cycle for housing.

That's not to say there aren't some things being tried, or pulled down off of mortgage shelves and dusted off. The nation's largest wholesale mortgage lender is offering (through mortgage brokers) 0% down purchase-money mortgages, aimed at first-time or low-and-moderate income buyers (must be below 80% of the Area's Median Income, or AMI, accomplished by the use of a 3% down second mortgage of up to $15,000.

The nation's largest retail lender is offering a 1% down mortgage option, providing 2% of the purchase price as a no-loan grant. Customers can contribute up to 3% of their own funds and still receive the 2% grant. This is also available to folks meeting the 80% AMI standard, typical minimum credit score requirements and other qualifying factors. As well, some lenders are again offering piggyback mortgages, too.

To help entice potential homebuyers to consider newly constructed homes, homebuilders have been very proactive in offering financing supports, offering temporary or even permanent interest rate buydowns.

According to the most recent Survey Loan Officer Opinion Survey from the Federal Reserve covering the third quarter of 2024, underwriting standards for most kinds of mortgages were essentially unchanged, at least at the 55 banks who participated in the Fed's quarterly poll. Only loans made to subprime borrowers saw tightening, with about 12% of the respondents reporting stiffer standards (only 16 of 55 even participate in subprime mortgage lending).

But banks don't make up nearly as much of the mortgage lending market as they once did. Independent mortgage banks and wholesalers who serve mortgage brokers make up the majority at the moment, and as noted above, these folks have been much more proactive in expanding opportunities for potential homebuyers.

For the most part, though, any changes are likely small, and are probably incremental. For example, it may be that lenders are lowering minimum credit score requirements, so a borrower with a FICO 750 might get the same jumbo rates now as someone with a FICO 760 did earlier this year. Or, it may be that some are accepting borrowers with higher debt-to-income ratios, or loosening may apply to loans made to certain self-employed borrowers, such as doctors or lawyers. Whatever the case, any incremental changes along the fringes of underwriting are good news for potential homebuyers who are pretty well qualified but may have otherwise had trouble finding financing (or would pay a premium for it when they did).

What this ultimately means is that even though the majority of the mortgage market may be a homogenous place, you still need to shop around, since lenders don't all adhere to exactly the same set of underwriting specifications. That's especially true if your needs fall outside of the mainstream of borrowers, who should be thankful for improved opportunities to borrow with lowered mortgage costs.

Fast-growing equity stakes

Fast-rising home prices are a real problem for those looking to buy a home, but a great benefit to those who own them or are looking to sell.

Even at a time of high mortgage rates and elevated home prices, there's a real advantage to becoming a successful homebuyer in a market with strong home price appreciation. Home value changes are a highly localized thing, and neighborhoods on one side of a metro area may be increasing quickly while one on the other side may not be. For areas where home values are still pushing higher, a new homebuyer is likely to see their equity stake grow extraordinarily quickly.

A larger equity stake provides a cushion against any softening or local downturn in home values, can make it possible to cancel Private Mortgage Insurance more quickly (saving money) or even offer a chance at refinancing to a lower interest rate should financing conditions prove favorable in the future.

For example, a homebuyer who purchased a median-priced home in the Atlanta, GA metro area in the second quarter of 2022 at a cost of $379,300 would have seen its value rise by 9.24% by the end of the second quarter of 2024. Had the homebuyer made just a 10% down payment at the time -- a 90% loan-to-value (LTV) ratio -- the increase in value plus two years of loan payments would have lowered that LTV to 80.3%% Many PMI policies can be canceled when the homeowner's LTV ratio falls below 80%, a threshold this borrower likely crossed in the last couple of months. This borrower has also likely now passed the so-called "seasoning" requirements of making at least 24 payments before the PMI policy can be terminated.

PMI cancellation or not, having a stronger equity position is something for which to be thankful, and even a borrower who bought a national median priced home of in the first quarter of 2024 at a median purchase price of $389,400 has seen a 7.55% increase in their equity stake in just six months time, as the national median price for a home sold in the third quarter of 2024 had risen to $418,700.

Homebuyers who can get into homes in the seasonally lower-cost fourth quarter of 2024 or early in the first quarter of 2025 will likely get to enjoy the normal upswing for prices comes spring 2025, and they will no doubt be thankful for the seasonal (and often sizable) bump in their equity stake. The 4Q23 to 2Q24 increase in home prices was about 7.5% -- a nice bump for those who took the plunge despite high mortgage rates at the time.

You can track what's happening with home values in more than 400 metro areas using HSH's Home Value Tracker and estimate how much home equity you have using HSH's KnowEquity^sm Home Equity Calculator and Projector.

Even a still challenging housing market with affordability issues, there are still things for which homebuyers can be thankful. One additional one is the knowledge that difficult conditions can't and won't last forever, and if you haven't been well positioned to address the challenges of this market cycle, better opportunities may only be a short while away as conditions continue to change over time.