New Home SalesCENSUS
1,203K
U.S. Housing Market · 2004
U.S. Housing Market in 2004
Existing SalesNAR
6.78M
Median PriceNAR
$185,200
30Y MortgagePMMS
5.84%
In 2004, the U.S. housing market recorded existing-home sales averaged 6.78 million, new-construction sales of 1,203K, and a 30-year fixed mortgage rate of 5.84%.
Existing-home sales rose 9.7% from 2003. the median existing-home price rose 8.9% to $185,200. the 30-year fixed mortgage rose 0.01 percentage points to 5.84%.
By the numbers — 2004: new-home sales 1,203K, existing-home sales 6.78M, median existing price $185,200, 30-year mortgage rate 5.84%.
Macroeconomic Context
Economic growth accelerated to approximately 3.8 percent in 2004 as the post-recession recovery finally found its footing. Payroll employment began growing at a sustained pace after the "jobless recovery" of 2002–2003. Consumer price inflation rose to about 2.7 percent, partly driven by higher energy prices as global oil demand strengthened. The Federal Reserve recognized that its 1-percent funds rate was no longer appropriate and began a telegraphed, gradual tightening cycle in June 2004, raising rates by 25 basis points at every subsequent meeting — a pace so predictable it became known on Wall Street as the "measured pace."
Despite five rate increases between June and December, the federal funds rate ended the year at only 2.25 percent — still well below inflation on a real basis. Thirty-year mortgage rates moved upward but remained historically low, averaging roughly 5.8 to 6.0 percent. The paradox of rising short-term rates paired with relatively stable long-term mortgage rates — later called the "conundrum" by Fed Chairman Alan Greenspan — meant that housing affordability did not deteriorate as expected.
The housing market continued its extraordinary run. Subprime originations doubled in 2004 relative to 2003, and the share of mortgage-backed securities backed by non-prime loans grew sharply. Wall Street's securitization machine was packaging and distributing risk at a pace that obscured the underlying credit quality of the underlying loans. Private-label MBS issuance surged, and rating agencies applied models that systematically underestimated default correlation.
George W. Bush won re-election in November, campaigning in part on an "ownership society" vision that aligned politically with the expanding homeownership rate, which reached 69 percent — an all-time high. The boom had at least one to two more years to run.