Welcome to our May 2024 Real Estate Market Update, where we explore the latest trends and insights shaping the ever-evolving real estate landscape. As the year progresses, staying informed about the dynamic shifts and emerging opportunities in the market is crucial. Join us as we examine key indicators, delve into market dynamics, and provide invaluable insights to empower your real estate decisions. Whether you’re a seasoned investor, a prospective buyer, or simply curious about the current market, our comprehensive update is designed to guide you through the intricate world of real estate in May 2024.
New Home Construction Rebounds in April Despite Rising Mortgage Rates
Construction of new homes increased last month despite higher mortgage rates, partially reversing a significant slump in March. Housing starts rose by 5.7% in April from March, reaching a seasonally adjusted annual rate of 1.36 million, according to data released Thursday by the U.S. Census Bureau and the U.S. Department of Housing and Urban Development. However, they fell by 0.6% compared to a year ago. "The modest rebound in housing starts in April confirmed that the slump the month before was a weather-related blip," said Thomas Ryan, a property economist at Capital Economics. "But the recovery wasn’t as strong as we had anticipated." With a shortage of existing homes on the market, new construction has been crucial in meeting buyer demand in recent months. However, there are indications that higher mortgage rates are affecting homebuilders, as evidenced by a significant drop in builder confidence last month. Mortgage rates climbed back above 7% in April, ending the month at 7.17%, according to Freddie Mac. April's construction rebound was driven solely by a surge in multifamily housing starts, which increased by 30% from the previous month to an annual rate of 329,000. Despite the monthly gain, multifamily construction starts are down 25.9% from a year ago and remain well below historical averages. Single-family home starts were relatively flat from March to April, declining by less than 1%. However, new home construction was up 17.9% from a year ago.
Investor Home Purchases Increase for the First Time in Almost Two Years
Investor home purchases are increasing slightly for the first time in nearly two years. In the first quarter of 2024, real estate investors bought approximately 44,000 U.S. homes, up 0.5% from the previous year—the first increase since the second quarter of 2022.
This rise is mainly attributed to an uptick in single-family home purchases, which will be discussed further in the next section.
According to a Redfin analysis of county home purchase records from 39 of the most populous U.S. metropolitan areas, an investor is defined as any institution or business that purchases residential real estate.
Investor activity in the housing market is stabilizing after years of significant fluctuations. Investor home purchases more than doubled during the pandemic home buying boom in 2021, then dropped nearly 50% at the beginning of last year as declining rents and home values impacted potential profits. However, with home prices and rents rising again and the initial shock of elevated mortgage rates fading, investors are starting to ease back into the market.
Investors are also seeing higher profits: The typical home sold by an investor in March fetched 55.2% more ($174,616) than its purchase price, up from 46.3% ($146,586) a year earlier. Only 5.3% of homes sold by investors went for a loss, down from 13.7% in March 2023.
Investor purchases hit a low point in the first quarter of 2023, which partly explains the current year-over-year increase
The Number of Homes for Sale Is Increasing
There’s no denying that the past few years have been challenging for homebuyers due to a shortage of available houses. However, the situation is starting to improve.
This year, there are more homes on the market. The graph below, using the latest data from Realtor.com, shows that in April 2024, more homes were for sale than in the past few years (2021-2023):
As explained by Realtor.com “There were 30.4% more homes actively for sale on a typical day in April compared to the same time in 2023, marking the sixth consecutive month of annual inventory growth.”
But does this increased inventory make house hunting easier? The answer is both yes and no.
The graph below, using the latest weekly data from Calculated Risk, indicates that despite recent growth, the number of homes for sale is still significantly lower than in the last normal year for the housing market:
Sources:
Sources: Redfin. Keeping Current Matters. Realtor.com
