The state of the US housing market in 5 charts

• In recent months, the US housing market has seen mortgage rates fall while inventory stays tight.
• New home sales are down 27%, and existing home sales have declined 40% since January 2022.

The US housing market is facing historic unaffordability and it's kept countless Americans sidelined or forced to face hefty monthly home payments.

Industry veterans forecast the market to loosen slightly in 2024. An uptick in inventory and a moderating "lock-in" effect — current homeowners being unwilling to move because they previously secured lower mortgage rates — should fuel more buying activity in the months ahead, experts predict, but headwinds will persist.

Mortgage rates are still hovering near two-decade highs, but out-of-whack supply and demand dynamics have prevented home prices from falling as they typically do when borrowing costs rise.

"[T]his spike in rates has had a marked impact in other areas, including causing a sharp deterioration in housing affordability to its lowest level since 1985 and dramatically lowering the supply of existing homes for sale in the market," William Blair macro analyst Richard de Chazal said in a note published Friday, referencing the chart below.

Redfin data shows just 15.5% of homes were considered affordable for the average household in 2023, down from 20.7% the year prior.

Still, given the sizable share of homeowners who were able to secure record-low rates during the pandemic, before the Federal Reserve's monetary policy tightening cycle, many Americans still have an effective mortgage rate of 3.7% — well below the near-7% current rates.

This lock-in effect has created a tale of two markets: those who have been crushed by high mortgage rates and those who have mostly gotten by unaffected.

This lack of affordability can largely be traced to a decade of underinvestment in construction following the 2008 financial crisis.

But in 2023, that dearth of supply for existing homes was a boon for homebuilders — and Wall Street took notice.

The S&P 500 Homebuilder Index increased by 72.5% last year, versus the aggregate S&P 500's 24.2% rise, as William Blair's data highlights.

Supply constraints, in the firm's view, should let up thanks to more construction this year, but also because current homeowners may have to bite the bullet and move, regardless of affordability concerns.

"Many existing homeowners can only wait so long before they need to sell their homes, due to factors such as work relocation; other changes in household circumstances, such as marriages, divorces, or additional children; or what is likely to be the biggest driver, rising work redundancies," de Chazal said.

While current home sales are squarely below the historical average — new home sales are down 27% and existing home sales are down 40% since January 2022 — rising delinquencies in the multifamily market suggest pressure is mounting, trends highlighted in the two charts below.

Ultimately, in 2024 William Blair forecasts supply to improve, mortgage rates to fall, and existing homeowners to return to the market out of necessity.

"The good news is," de Chazal said, "that these cyclical pressures are being buttressed by the structural demand dynamics resulting from both an aggregate underbuild and demand related to shifting demographics."