What Happened in 2024: A Current Snapshot of the Housing and Mortgage Markets

In a recent webinar, our own Mike Derstine, EVP and Chief Risk Officer, and Mary Kay Scully, Director of Customer Education, dove into the key economic trends of 2024, providing a comprehensive overview of the housing and mortgage markets. The discussion highlighted significant growth in personal consumption, a strong labor market, and the impact of inflation on consumer sentiment and housing affordability.

Get the recap of the webinar below for a summarized, Q&A style rundown on what happened in 2024 and what to expect as we move into 2025.

What were the main economic trends in 2024?

In 2024, the economy saw significant growth, particularly in personal consumption, which accelerated from around 2% to nearly 3.7%. This growth was driven by healthy household balance sheets and real wage growth that exceeded inflation. According to Mike Derstine, “household balance sheets have been healthy, some pandemic savings really helped get that started, but even since then, balance sheets have been healthy and allowed consumers to continue to spend.” However, there were concerns about the sustainability of this consumption growth as consumers started saving less.

Two factors are supportive of the elevated consumption levels we see today:

• Higher levels of real wealth: households across the income distribution have seen increases in wealth, even excluding real estate.
• Strong real wage growth at the bottom of the wage distribution: lower income-earning households have seen relatively strong real wage growth. Compared with higher income-earners, these households are less likely to save an additional dollar of income.

Economic growth was largely unexpected for this year, with forecasters revising their predictions upwards throughout the year. The consumer sector played a crucial role, with personal consumption making up more than two-thirds of overall economic growth. Despite initial concerns about unsustainable spending levels, revisions in September showed that consumer spending was more sustainable than previously thought. Real wage growth across all income segments helped support this spending. Nonetheless, there are signs of potential cracks, such as rising auto and credit card delinquency rates.

• • Conventional home loan delinquency rates remain below 2019 levels as of Q2’24; FHA rates are elevated.

What were the key factors affecting consumer sentiment?

Despite wage increases and job opportunities, many consumers felt the pinch of higher costs for goods and services. Inflation, although reduced, particularly in areas like food, autos, and housing, still impacted consumer sentiment. Our expert highlighted, “while inflation has come down quite a bit towards the Fed’s 2% target, the cumulative effect of that bubble that occurred from 2021 to 2024 is still playing out in the markets.” This led to consumers making difficult choices about where to prioritize their spending.

Consumer sentiment in 2024 was influenced by several factors. While inflation rates decreased, the lingering effects of high inflation from previous years continued to impact consumers. Higher costs for essential goods and services, such as food and housing, forced consumers to make tough spending decisions. Additionally, disinflation was achieved through rising interest rates, which slowed down spending in key areas like housing. Despite these challenges, real wage growth helped maintain consumer spending levels.

How did the labor market perform in 2024?

The labor market remained strong, with firms continuing to expand and hire, although at a moderated pace compared to post-pandemic levels. The unemployment rate rose slightly to just over 4% from lows around 3.5%, 3.7%, partly due to more people entering the labor market. Despite this, Mike Derstine commented that “we have not seen a significant uptick in layoffs.”

The labor market’s performance was a key indicator of economic health. While the unemployment rate increased slightly, this was largely due to more individuals entering the labor market, including a rise in immigration. The number of job openings remained high, although hiring rates slowed down. This moderation in hiring, coupled with stable layoff rates, suggests a more balanced labor market compared to the volatility seen in previous years. For comparison, the 2016-2019 average unemployment rate was 4.2%. The rise in long-term unemployment rates is a concern, indicating that it may be harder for individuals to find new employment if they lose their jobs. The percentage of workers unemployed for at least 15 weeks has risen from 1.3% to 1.7% since April (1.3% average in 2019).

How did inflation trends impact the housing market?

Inflationary pressures, especially in housing, were significant. The Federal Reserve’s rate hikes led to higher mortgage rates, which affected housing affordability. Mike Derstine noted “the way they indirectly addressed that was raising rates, causing 30-year mortgage rates to rise, which caused affordability to be pressured.” Home prices saw moderation, with growth rates slowing to around 2% annualized. This was a relief for consumers who had been waiting for more affordable housing options. Also, we saw meaningful disinflation over 2024, with an increase of 2.4% year-over-year for consumer price index (CPI) in September and an increase of 3.3% for core CPI.

The impact of inflation on the housing market was profound. Higher mortgage rates, driven by the Federal Reserve’s rate hikes, put pressure on housing affordability. This led to a slowdown in home price growth, with the annualized rate dropping to around 2%. The moderation in home prices was a welcome change for potential homebuyers who had been priced out of the market during periods of rapid price increases. However, rental costs remained high, adding to the overall housing affordability challenge.

What were the trends in home prices across different regions?

While overall home price appreciation slowed, certain states like those in the western U.S., Texas, and Florida experienced even slower growth in Q2. We saw year-over-year home price appreciation nationwide slow from 19% in July 2021 to 4.2% in August 2024. Mike Derstine stated, “we’ve seen quite a bit of moderation over the course of 2024, really with the exception of February’s home price.” Although home price inflation moderated in 2024, no markets experienced significant price declines.

Regional variations in home price trends were notable in 2024. States that had seen significant price appreciation during the post-pandemic period, such as those in the western U.S., Texas, and Florida, experienced slower growth. Despite this moderation, there were no major declines in home prices, indicating a stable market overall. The moderation in home prices could help potential buyers who had been waiting for more affordable options, particularly first-time homebuyers who did not benefit from rapid home price appreciation.

What are the expectations for the housing and mortgage markets in 2025?

As we move into 2025, the focus will be on how consumption growth holds up and whether the labor market remains strong. Mike indicated that “what we’re really watching as we go into next year is just how that will hold up another year.” The housing market is expected to continue its trend of moderation, with affordability being a key factor for potential homebuyers. Forecasters are expecting mortgage rates to settle in the 6% range, with mortgage activity remaining depressed as borrowers continue to be locked-in by older, low-rate mortgages. Lower rates alone won’t solve affordability obstacles, though.

Origination volumes are supported by larger loan balances, but the pace of activity remains slow. Key factors:

• Borrowers locked-in by older, low-rate mortgages
• Lack of inventory
• First-time homebuyers (FTHBs) housing demand suppressed by poor affordability
• Lack of refi incentive due to relatively inflated interest rates

The key areas to watch for next year will be the sustainability of consumption growth and the strength of the labor market. The housing market is expected to maintain its trend of moderation, with affordability remaining a critical issue for potential buyers. It will be important for those in the industry to monitor economic indicators and consumer behavior to gauge the market’s direction. Overall, the outlook for 2025 is cautiously optimistic, with a focus on maintaining stability and addressing affordability challenges.

More Ways We Can Help

The 2024 economic landscape has been marked by significant growth in personal consumption, a resilient labor market, and ongoing inflationary pressures, particularly in the housing sector. As we look ahead to 2025, the key areas to watch will be the sustainability of consumption growth and the strength of the labor market. The housing market is expected to continue its trend of moderation, providing potential opportunities for homebuyers.

To gain a deeper understanding of these trends, we encourage you to watch the full recording of the webinar below.

Be sure to make the most of your MI experience, too. Because going the extra mile comes easy for us, we also offer a comprehensive suite of training resources to help boost your industry experience. And don’t forget to utilize our income calculation tools if you come across different income types on your mortgage loans.

Source:  Mike Derstine is Enact’s EVP and Chief Risk Officer.

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