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The stronger buying activity was driven by gains in the Midwest, South and West, while the Northeast declined compared to the prior year.
“The housing market is off to a good start this year, as consumers benefit from falling mortgage rates and stable home prices,” NAR chief economist Lawrence Yun said in a press release.
The housing market has experienced a dramatic slowdown over the past two years as the Federal Reserve has raised interest rates, part of a plan to get inflation under control. Higher borrowing costs made mortgages more expensive, and fewer homes were put up for sale as homeowners saw little reason to quit their low-rate mortgages.
Mortgage rates are still more than double their 2021 lows. But they have drifted downward in recent months, providing home buyers some relief. The average interest rate on a 30-year fixed mortgage stood at 6.69 percent as of Thursday, according to Freddie Mac, down from the October high of 7.79 percent.
Yun added that the market should get a boost in 2024 if mortgage rates continue to fall, with the Federal Reserve expected to cut its own benchmark rate four times this year. The Fed probably will hold rates at their current level for at least a few more months, Comerica Bank chief economist Bill Adams wrote in a note to investors, though he added that a rate cut as soon as March is not out of the question.
Those expectations were buoyed by new data out Friday, which showed that growth in the personal consumption expenditures price index, which is the Fed’s preferred inflation gauge, slowed to 2.9 percent in December, excluding food and energy. Total goods prices fell 0.2 percent from a month ago, while rent rose 0.4 percent month-over-month — reflecting the slowest gain since 2021, according to LPL Financial chief economist Jeffrey Roach.
Even as inflation has fallen, recent economic data has given experts reason to be optimistic. The U.S. economy grew by a healthy 3.1 percent in 2023, the Bureau of Economic Analysis said Thursday.
Yun, the NAR economist, says he expects rent prices to further stabilize over the next year because of recent growth in apartment construction, something that should further slow inflation.