According to recent data, home sales across the United States fell to the lowest level in nearly 30 years in 2024.
This is largely in response to interest rates that are between 6% and 7%, which has made the cost of borrowing money more expensive compared with just a few years ago.
Wall Street Journal reporter Nicole Friedman joined the Texas Standard with an analysis on the status of the housing market.
This transcript has been edited for clarity:
Texas Standard: Can you tell us where interest rates are now exactly and about what people are paying for homes?
Nicole Friedman: Mortgage rates are pretty close to 7% right now. And that’s more than double where they were back during that kind of pandemic housing boom in 2020, 2021. You might remember rates were close to 3% or even lower, and a lot of people were jumping into the housing market taking advantage.
And now mortgage rates are close to 7%. So a lot of people are saying, I couldn’t even afford to buy my own home again, let alone afford to move to a different, maybe bigger home. And for first-time buyers, they’re feeling pretty shut out of the market.
Texas Standard: Well, the Fed sets these interest rates, and they’ve been slow to really reduce them quickly. Does it feel like we’re in this new era of high interest rates? And is this something homebuyers are just going to have to get used to?
Friedman: So it does feel like this is a bit of a new normal. The Federal Reserve has been cutting short-term rates, and that does indirectly affect mortgage rates. And so if the Fed keeps cutting rates this year, that could slightly lower mortgage rates.
But nobody’s expecting a big drop this year. Buyers are either having to adjust their budgets or adjust their expectations for a home in order to find something they can afford. Or they’re just sitting on the sidelines saying, we’ll just keep waiting until the rates are lower. But it could be a few years.
Texas Standard: So for a while, we’ve been talking about this being a seller’s market, but with things at kind of a standstill, are sellers still benefiting from these higher home prices, or are they kind of stuck in the sales game?
Friedman: So it’s kind of a frozen market. People say it’s not really a buyer’s or a seller’s market because there’s this standoff going on where sellers are still remembering what their neighbor sold for a couple of years ago and saying, “I don’t want less than that.” And so sellers are pretty reluctant to cut their prices unless they really have to sell.
And buyers are feeling really pinched by this affordability. So the price that sellers want and the price that buyers want is pretty far apart right now. We are seeing that buyers have some more negotiating power – they’re more able to get homes for under a listing price or maybe get other concessions from the seller than they were a few years ago when it was a really competitive market.
But we’re not seeing sellers hugely cutting their prices, either, because a lot of sellers have that low mortgage rate and can afford to just kind of sit pretty and stay in their home without moving.
Texas Standard: Well, home sales are a pretty big part of the American economy. Is there concern that them being down at the moment could have an outsized impact on overall economic growth?
Friedman: Yeah. The housing market is a big part of the economy. When people buy homes, they spend a lot of money on other things, too: They hire movers, they hire painters. Maybe they go buy a refrigerator or a couch. A big home purchase leads to a lot of other consumer spending.
So when people are not making home purchases, that does hurt all those related businesses – roofers, furniture stores, and all of these types of companies. It’s definitely limiting that kind of housing spending that powers a lot of businesses.