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Fannie Mae's latest Home Price Index (FNMA) reveals a surprising 5.8% jump in single-family home prices year-over-year from Q4 2023 to Q4 2024, outpacing the prior quarter's 5.4% growth rate. The housing market seems to have shrugged off affordability concerns, with quarterly price gains hitting 1.7% on a seasonally adjusted basis. Chief Economist Mark Palim didn't mince words, citing the "lock-in effect" as the key culprit. With mortgage rates flirting with 7%, many homeowners are holding tight to their lower-rate loans, keeping inventory painfully scarce.
This supply squeeze isn't easing anytime soon. While listings have slightly improved compared to last year, demand remains ferocious, especially among first-time buyers waiting to pounce. Palim points out that without a meaningful drop in mortgage rates, prices are likely to stay stubbornly high. For buyers, the dream of affordability might feel like a mirage, but for investors, the dynamics of tight supply and strong demand are worth watching closely.
With inventory bottlenecks and robust buyer interest, the housing market is set to keep driving action across sectors. Real estate investment trusts, homebuilders, and mortgage-backed securities stand to gain from this imbalance. As Fannie Mae navigates these challenges, investors should brace for more price action in 2025. It's a market teetering on the edge of opportunityor frustrationdepending on where you're standing.
This article first appeared on GuruFocus.