AEI Housing Market Indicators, January 2024

Video Recording

Key Takeaways

• Purchase volume in 2024 week 4 was down 8% YoY and down 41% from the same week in 2019.
  • October 2023 agency purchase loan volume decreased by 2% from September 2023 and is below October 2013.
  • We are expecting the total agency loan volume (refi and purchase loans combined) to decrease to 125,000-150,000 by January 2024. This would be a 15%-30% decline from the series low (combined volume of 175,000) set in January 2023.
• Year-over-Year (YoY) HPA in December 2023 remains strong at 5.9% due to low levels of inventory.
  • December 2023’s YoY HPA was 5.9%, up from 5.7% a month ago and 4.6% a year ago.
  • Over 2023, higher rates affected regional home prices differently. The West, where home prices have either been historically unaffordable or have recently become unaffordable, was hit the hardest by the rising rates at the beginning of 2023.
  • Months’ remaining supply was 3.8 months (not seasonally-adjusted) in December 2023. Housing inventory continued to run below pre-pandemic levels, which helps explain the robust YoY HPA Months’ remaining supply was 4.3 months (not seasonally-adjusted) in November 2023. Housing inventory continued to run below pre-pandemic levels, which helps explain the robust YoY HPA.
• FHA’s March 2023 mortgage insurance premium (MIP) will not help prospective homebuyers and exposes taxpayers to increased default risk.
  • FHA’s Jan. 2015 annual MIP cut (from 135 to 85 bps) and its Mar. 2023 annual MIP cut (from 85 to 55 bps) corresponded to about a 7% and a 3.5% increase in buying power, respectively.
  • Since these demand-enhancing policies were both implemented during sellers’ markets (indicative of supply tightness), much of the MIP cut was absorbed into higher selling prices, the beneficiaries were existing homeowner-sellers, not first-time FHA buyers, as claimed by FHA.
  • There was an immediate bump in in FHA’s market share, as it poached share from its other taxpayer backed agency competitors.
• Seattle’s inclusionary zoning (IZ) requirement led to a collapse in townhome construction. 
  • Since Seattle passed the Mandatory Housing Affordability (MHA) program, new permits for townhomes have dropped precipitously, while they have remained unchanged for the control group.
  • Under highest and best use, ADUs are only a second-best alternative to LTD.
• Increasing the supply of affordable housing: the Low-Income Tax Credit (LIHTC) and the proposed Middle-Income Housing Tax Credit (MIHTC) vs. market solutions.
  • Housing unaffordability is a self-inflicted wound, stemming from a government regulatory failure that perpetuates a massive supply-demand imbalance.
  • State and local supply reforms require no taxpayer subsidies and in the few areas where they have been implemented, they have worked. If more states and cites sign on, such reforms could provide hundreds of thousands of new homes each year and thus allow more Americans to access their own American Dream.

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