The year end review 2024 has a few silver linings for buyers and sellers in Bethesda MD and the rest of the DC metro area. As home prices hit new highs, home builders have been incentivized to build more homes. In recognition of these higher prices, mortgage giants Fannie Mae and Freddie Mac announced that they would back single-family mortgages of up to $806,500 in most markets, and loans of up to $1.2 million in high-cost markets.
Home Appreciation Slowed by the End of 2024
The year end review 2024 shows that home appreciation in the first quarter of 2024 peaked at 6.7% and slowed to 5.8% in the last quarter. This was a significant improvement over the 19.2 and 18% rates that homes appreciated in the first and second quarters of 2022 respectively.
The economists at Fannie Mae see home price appreciation decelerating to 3.6 percent by the fourth quarter of 2025 and 1.7 percent by Q4 2026. While there is no expectation of prices dropping on a national level, there may well be some markets that post very small negative (price) declines according to Fannie Mae Chief Economist Mark Palim. The dynamics in the housing market are a substantial regional variation because of the relative importance of new homes in different markets.
Year End Review 2024 – Housing Starts
The pace of new-home construction dropped far below the historical trendline during the Great Recession of 2007-09 and has yet to fully recover. But builders had 9.5 months of inventory on their hands in October, and Odeta Kushi, deputy chief economist at First American Financial Corp. believes that they’ll continue to offer incentives like mortgage rate buydowns to boost affordability and sales. “I do think that [builders] have a competitive advantage over the existing-home market and that the new-home market will continue to outperform the existing-home market next year,” Kushi said,
The Mortgage Lock-in Effect
The year end review 2024 shows that inventories of existing homes have been constrained by the mortgage “lock-in effect” — the financial incentive to stay in a home financed by a loan with a low rate.
Many homeowners who bought or refinanced their home at a lower rate during the pandemic might be itching to move — or simply trade up or down — but decided to stay put after doing the math.
Consider a homeowner who refinanced an outstanding mortgage balance of $500,000 on their 3,000-square-foot house in 2021 by taking out a mortgage at 3 percent with a monthly payment of about $2,100.
Downsizing to a 1,500-square foot home with a $350,000 mortgage at the current rate of around 6.9 percent would saddle them with a monthly payment of $2,300. A smaller house, a smaller mortgage, and a larger monthly payment: Not much of an incentive to make a move.
Similarly, ICE Mortgage Technology estimated in April that trading up to a home worth 25 percent more would more than double the monthly payment of the average mortgage holder.
Because homeowners in more expensive markets give up lower rates on higher balances, the lock-in effect is thought to be particularly pronounced in more expensive California metros like San Jose, Los Angeles, San Diego and San Francisco.
As of mid-2024, the average homeowner’s mortgage rate was 2.54 percent lower than the current market rate, a “level of lock-in unprecedented in recent history,” according to researchers at Fannie Mae and Freddie Mac’s federal regulator.
The lock-in effect is estimated to have prevented 1.72 million sales over the past two years, increasing home prices by an estimated 7 percent, the Federal Housing Finance Agency concluded in a recent analysis.
Conforming Loan Limits Increased in 2024
PWhile the national median home price has risen to the point where a big chunk of renters not earning six-figure incomes have been priced out of the market, median prices in many markets are even higher.
In 2025, mortgage giants Fannie Mae and Freddie Mac will be allowed to back single-family mortgages of up to $806,500 in most markets, and loans of up to $1.2 million in high-cost markets.
Fannie and Freddie’s conforming loan limit, which is tied to home prices, went up for the first time in a decade in 2017 — a 2 percent increase that boosted the limit by $7,100. After eight additional increases — including a record-breaking 18 percent adjustment in 2022 — the conforming loan limit has nearly doubled in less than a decade.
That’s good news for homebuyers who might otherwise have to take out jumbo mortgages that can carry higher rates and stricter underwriting requirements than loans backed by Fannie and Freddie. But the dramatic runup in the conforming loan limit could also be contributing to higher prices, critics say.
In higher-cost markets, Fannie and Freddie are allowed to purchase bigger mortgages based on a multiple of the median home value, up to a ceiling that’s equal to 150 percent of the baseline conforming loan limit.
Fannie and Freddie’s 2025 ceiling in high-cost markets will be $1,209,750 for single-family homes, $1,548,975 for two-unit properties, $1,872,225 for three-unit homes, and $2,326,875 for four-unit properties.
Mortgages backed by the Federal Housing Administration (FHA) are going up as well, allowing homebuyers putting as little as 3.5 percent down to borrow at least $524,225 in low-cost markets in 2025 and as much as $1.2 million in high-cost markets like New York, San Francisco and Washington, D.C.
Year End Review 2024 – Prices versus Affordability
While the increases in the raw numbers tracking home price appreciation are dramatic, they can be misleading because they don’t take into account the impact that rising incomes and fluctuations in mortgage rates can have on affordability.
The First American Real House Price Index (RHPI), which takes those factors into account, estimated in November that adjusted home prices are still about 8.5 percent lower than the peak seen during the 2006 housing boom.
But in recent years, the First American RHPI suggests affordability — or “house-buying power” — declined significantly in the aftermath of the pandemic, thanks to the run-up in mortgage rates.
House-Buying Power Declined in 2024
The year end review 2024 shows what everyone knows already. During the pandemic, as household incomes climbed and mortgage rates plummeted to 2.8 percent, Americans saw their house-buying power climb to a peak of $499,535 in August 2021 as measured by the RHPI.
But by October 2022, as mortgage rates climbed toward 7 percent, house-buying power had declined by 33 percent to $334,791. House-buying power has rebounded in 2024 but remains well below pre-pandemic levels.
The latest reading of First American’s RHPI showed that as of November, the typical American could afford to buy a $376,740 house — down 13 percent from January 2020, the eve of the pandemic — despite the fact that household income rose by nearly 24 percent over that period, to $84,889.
The difference? Mortgage rates climbed from an average of 3.6 percent in January 2020 to 6.8 percent in November 2024.
Another way to look at affordability is to measure what share of household income is needed to buy a median-priced home.
By that measure, housing affordability is just as big a problem as it was at the peak of the 2006 housing boom, according to the Federal Reserve Bank of Atlanta’s Home Ownership Affordability Monitor (HOAM).
Covering the principal and interest payments, property taxes and insurance on the median-priced home in October would consume 45 percent of median household income, according to data tracked by HOAM.
Home purchases that consume more than 30 percent of the buyer’s household income are considered unaffordable by the Department of Housing and Urban Development (HUD).
By that yardstick, the last time homes were affordable was March 2021, when the median home price was $290,000 and mortgage rates averaged 3.1 percent.
“It’s potential first-time home buyers that are most challenged, because they don’t have the equity from the sale of an existing home to bring to the closing table,” Kushi said.
While downpayment assistance programs can be “very beneficial” for those buyers, “the long-term, sustainable solution to the housing market challenge is more supply,” Kushi said.
As builders break ground on more homes — and existing homeowners get more comfortable about leaving “ultra-low mortgage rates” behind, Kushi said — “more supply will allow house prices to gradually come down.”
But affordability “is going to continue to be an issue, given how unaffordable the housing market is, even if you have some positive movement,” Fannie Mae Chief Economist Mark Palim said.
Year End Review 2024 – Washington DC Metro Area
The Washington DC Metro area saw an increase in total sales volume of 14.7% year over year and an increase of 7.7% in units sold year over year. The median sold price increased 5.3% while the average sold price increased 6.4%. The median days on market increased by 18.2% and the median price per square foot increased by 3%.
Year End Review 2024 – Bethesda MD
The year end review 2024 shows that the total sold volume in Bethesda dropped in 2024 by 12.1% while the number of sales dropped by 9.5% year over year. The median sold price rose by 1.4% but the average sold price dropped by 2.3%. The median days on market increased by 44% while the median price per square foot increased by 20.9%.
Should We Talk?
If you are fascinated by the ins and outs of the housing market, we should talk. If you are interested in buying or selling a home in 2025, we should talk. I am sure you will agree that working with a Realtor who understands the market will make your real estate experience smoother. You can reach me at 240-401-5577 or email me at lise@lisehowe.com.
