We are in the thick of summer and the “hot” time of year for home buying and selling. Many of our clients are checking in with us to ask – “Are we through the demand slump? Are interest rates heading down?” So, we’ve wrapped up all of those common questions and provided our insights and thoughts for you below.

What’s the overall analysis?

According to the June 2024 analysis from Realtor.com‡, the number of homes actively for sale was notably higher compared with last year, growing by 36.7%. The report also stated that homes are spending an average of 45 days on the market, which is two days more than this time last year. Despite this number shifting, homes are still being sold at paces quicker than pre-pandemic levels, which may bring some feelings of relief.

Financially, we are operating in a continued higher interest rate market. We are seeing purchases happen, but it’s lighter than usual given the time of year and that is because rates are still high. This is when we usually see the most movement in the market, and we have seen some pickup, but not to the normal levels we typically see in the summer.

Prices are not coming down quickly in any area of the economy, from housing to everyday grocery items. Things are expensive right now; however, inflation is slowly coming down.

Overall, we continue to believe there is still pent-up demand to buy homes that will lead to more movement in the market.

Why haven’t interest rates come down as expected?

We were initially expecting interest rate reductions mid-year, but now that has been pushed out. Our UMB economists shared in April that we have shifted from expecting 6 or 7 rate cuts this year to a more cautious tone, with rate cuts happening slower and later this year. There is a chance we won’t get reductions from the Federal Reserve until we are into 2025. Historically in an election year you see interest rate reductions, but so far, we aren’t seeing that this time.

The inflation we are experiencing has been the reason for the higher rates and has increased the probability of an outcome where inflation gets stuck, and rates must make another move upward. We continue to be optimistic that rates will ease.

I’m looking to buy- what is the inventory like across the market?

There is a pent-up demand to buy, and we’re also seeing homeowners wanting to leverage some of the record home equity available to them. The average homeowner currently has $299,000 in home equity, and $293,000 available for a home equity loan, according to the February 2024 ICE Mortgage Monitor report‡. Because of this, we believe that as rates come down, people may decide to buy another house or complete home improvements on their current homes. Current homeowners who are comfortable borrowing against their house will create movement.

For first time homebuyers, patience is key.  If you are struggling to find a home, revisit how large of a geographic area you’re willing to look for a home in, take a look at your needs and must-haves and re-evaluate your options.

One unique thing we are seeing is that new homes that are being built across the country are being sold. In some of our markets, we continue to see the price between existing homes and new homes come together. So, some clients are looking at new homes that may be more attainable than buying an existing home. According to the National Association of Realtors Realtor Magazine, new-home sales traditionally account for about 10% to 12% of the market‡ for single-family homes but recently have comprised more than 30%.

What’s new that home buyers should keep their eyes on?

One new wildcard that we are warning clients about is the rising cost of homeowners insurance. On top of already high interest rates and home prices that aren’t falling, we are seeing both home and car insurance rise year over year and it is really impacting affordability more than people would realize. According to a recent story from the New York Times‡, the typical U.S. household paid $2,530 in home insurance premiums last year, which was 33 percent more than in 2020. That’s a bigger jump than inflation, which increased prices across the economy by 19 percent over the same period.

We have seen insurance doubling the cost of a monthly mortgage. If your insurance doubles from $150 a month to $300 a month, for example, that is a much greater increase than an eighth or a quarter shift in interest rates would be. We remind clients to not get so stuck on interest rate that they are missing this critical cost as well.

We recommend that any potential buyer get an insurance quote up front. Do it even earlier in the process than normal to understand the cost in total that you will be looking at and avoid last minute unwelcome surprises. For example, we have seen insurers refuse to cover a house unless it has a new roof. Overall, we are advising more focus on insurance as early as possible.

In the same vein, we are also recommending clients to pay attention to moving costs as part of the overall homebuying experience and something you need to prepare for. On average, the cost to hire movers to move a three-bedroom home locally is around $2,200, and the average cost for a long-distance move for a home of that size is $4,400, according to Forbes research‡. But a long-distance move could cost anywhere up to $12,000, in some cases, depending on circumstances like the size of your home and the type of items that need moving.

Are there any unique spots in the market for buyers to know about?

When it comes to new builds in places like Phoenix and Dallas, we’re seeing a lower price point for those homes. In a market like Kansas City, there is a much larger price gap between an existing home and a new home.

In all our markets, there was a thought that higher rates may depress home values, but that hasn’t been the case. Specifically in Denver, first time home buyers looking for that starter single-family home are having a really difficult time because prices are just not softening. With the growth we are seeing in Dallas, home prices are exceeding the Midwest.

These are all reasons to work with a professional in your area that is going to know the specifics of that market and can work with your needs to find the right fit.

Top takeaway

Overall, one thing that doesn’t change is the need for a trusting advocate in your corner when navigating the real estate market. Ensure you are working with a team you trust who can easily explain the complexities of a home purchase to you. The real estate market will continue to ebb and flow so it is important to work with people who can help you whether the storm.

UMB personal banking solutions offer convenience and simplicity to meet all your financial needs. From home loans to auto financing and everything in between, see how UMB personal banking can work with you to find the right products for your life and lifestyle.

Navigate the homebuying process and learn about the benefits of owning a home through the Owning a Home playlist on the UMB Financial Education Center. Use our mortgage calculator to see the impact of these variables along with an amortization schedule.

When you click links marked with the “‡” symbol, you will leave UMB’s website and go to websites that are not controlled by or affiliated with UMB. We have provided these links for your convenience. However, we do not endorse or guarantee any products or services you may view on other sites. Other websites may not follow the same privacy policies and security procedures that UMB does, so please review their policies and procedures carefully.