Introduction
An unexpected rise in mortgage rates has slowed down the spring home-buying season, making homes less affordable and stalling the market. While sales of new homes are doing well, existing home sales, which dominate the market, have decreased. On the bright side, this slowdown is helping to increase the country’s limited housing supply.
Changes in the Real Estate Market
The home-buying process is about to change significantly. A judge has approved a $418 million settlement involving the National Association of Realtors (NAR) that will change how real estate commissions work. Starting in July, these changes will affect the way homes are bought and sold. Rising mortgage rates and home prices, along with a long-standing inventory shortage, are making it tough for buyers.
Despite these challenges, experts predict a slight increase in home sales compared to last year and expect home prices to rise more slowly in 2024. Local market conditions will vary based on the available housing supply.
Current Market Trends
In February, U.S. home prices increased by 6.4% year-over-year, marking the eighth consecutive month of gains. This is the fastest annual growth rate since November 2022. Even with higher mortgage rates, home prices continue to rise, showing a 0.6% month-over-month increase.
Future Prospects for the Housing Market
For the housing market to improve, several factors need to align. More housing inventory is needed to ease the pressure on home prices. Mortgage rates, currently around 7%, would also need to decrease, ideally to the 4% to 5% range, to stabilize the market. However, experts believe it will take time to reach these levels.
NAR Settlement and Industry Changes
The NAR (National Association of REALTORS®) has agreed to a $418 million settlement to resolve antitrust lawsuits. The new rules, effective August 17, will prevent broker compensation offers on multiple listing services (MLS) and remove the seller’s responsibility to pay buyer broker commissions. Real estate agents will now need written agreements with buyers. While the NAR denies wrongdoing, it maintains that its policies benefit both buyers and sellers.
Impact on Buyers and Sellers
The new rules will change the costs of buying and selling homes. Sellers can no longer offer broker compensation in the MLS, but off-MLS negotiations are allowed. This means buyers and sellers can still negotiate broker compensation privately.
Buyers, especially those with FHA and VA loans, may face challenges under the new rules. These buyers might go unrepresented if sellers don’t offer compensation. The NAR is urging changes to allow VA buyers to pay broker commissions, but it’s unclear if this will happen by the July deadline.
Housing Inventory and Market Forecast
Many homeowners are hesitant to move due to low mortgage rates, keeping demand high and supply low. New construction is also slowing down. Recent data shows a decline in permits for new single-family homes, reflecting builders’ caution due to inflation and high rates.
Real Estate Market Stats
Existing-home sales dropped 4.3% from February and 3.7% year-over-year. Despite high demand, high interest rates have suppressed sales. However, existing inventory increased by 4.7% month-over-month. New home sales rose by 8.8% from February and 8.3% year-over-year. Builders are attracting buyers with rate buydowns and concessions due to the limited supply of existing homes. Pending home sales saw a 3.4% increase in March, indicating a potential rebound in existing sales in the coming months.
Challenges for Home Buyers
Nearly 40% of homeowners say they couldn’t afford to buy their current home in today’s market. High mortgage rates and home prices have pushed monthly payments for a median-priced home to record levels.
Tips for Navigating the Market
Buyers should understand their budget, be flexible with home size and location, monitor the market, and stay positive. Sellers should research comparable home prices, ensure their home is in top condition, work with a local real estate agent, and address necessary repairs.
Conclusion
A housing market crash in 2024 is unlikely due to the low supply and strong financial position of many homeowners. However, the market is expected to slow in home price growth and see a gradual increase in inventory. Buyers should focus on finding homes that meet their needs and budget, while sellers should prepare their homes and stay informed about market conditions.
For further details or assistance with the real estate in the GTA, feel free to contact
Paul Bendavid
RE/MAX Realtron Realty Inc.
Cell: 647-988-7355
Office: +1 905 539 9511
Address: 183 Willowdale Ave, Toronto
