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Realtors’ group: Lack of inventory pushes up house prices in much of US

Vehicles are parked outside homes in Manhasset, New York, on April 16, 2021. (Johnny Milano/Bloomberg via Getty Images)

(WISH) — Housing affordability has improved substantially amid a decline in mortgage rates from their record peak in October, sparking an interest in buyers who had stayed away from the market.

The National Association of Realtors Housing Affordability Index — which measures the degree to which a typical family can afford the monthly mortgage payment on a typical home — soared to nearly 102 in December from its low of 91 in October, when mortgage rates had hit a two-decade high of 8%, the real estate brokers’ group says.

A lack of inventory was forcing buyers to compete for what’s available and, in the process, pushing up prices. The National Association of Realtors this week said that close to 90% of America’s metropolitan areas saw price increases, with the single-family existing home median price up 3.5% to nearly $392,000.

While rates have declined from their highs in the fall, they were still elevated, said Danielle Hale, managing director of housing research for the national association. Buyers showed interest in December, but were yet to splurge in large numbers.

Sales in the fourth quarter of 2023 fell partly because of a lack of inventory. But in the same period, there was evidence that buyers could save some cash compared to previous months. For a new home costing about $332,900 in which the buyer paid a 10% down payment, their monthly outlay fell by more than 1% to $2,120, according to the association.

While the association indicated that sales were lukewarm in the months ending 2023, housing economists pointed to pending sales, a forward-looking metric, that showed December had a substantial improvement.

Last month, the NAR revealed that December saw pending homes sales jump by more than 8%, giving housing economists hope that 2024 will see a rebound in buyers entering the market with declining mortgage rates.

The key to further rate declines will come if the Fed cuts rates, which have been elevated to fight inflation but have stabilized.