Real Estate Market Update
The housing market has been a little sluggish this month, but there’s finally news to be thankful for!
Federal Reserve Chair Jerome Powell signaled that the Fed might be done raising interest rates for now, but the central bank isn’t ruling out another increase if the market shifts. This is the longest period without an increase since they started raising interest rates in March 2022.
Since then, mortgage rates have dropped by half a percent, according to data from Freddie Mac, but potential homebuyers are still holding out for lower rates and more inventory. Home prices are up year-over-year, and sales have also fallen dramatically, but we’re seeing slightly more existing homes for sale.
A cooling housing market looks grim, especially during these volatile times, but I see it as the return of seasonality! The housing market is typically less active at this time of the year, but as we approach spring, activity should ramp up, especially if rates stay down and inventory returns.
Here’s the latest housing update!
Nationwide, the median existing-home sales price for all housing types in October was $391,800 — 3.4% higher than the previous year, according to the National Association of Realtors (NAR). This is down from $394,300 in my October housing market update.
Mortgage rates hovered near 8% toward the end of October, but after the Fed announced that it doesn’t intend to raise rates again, interest rates dropped to 7.29% for a 30-year fixed-rate mortgage. Jessica Lautz, deputy chief economist and vice president of research for the NAR, said the steady decline is a sign we likely have hit a peak and mortgage rates are now headed south.
Housing inventory increased in October by 1.8% from September. Unsold inventory is currently at a 3.6-month supply, according to NAR. Existing home sales were down 4.1% in October, and sales are 14.6% lower than a year ago. However, there’s still plenty of pent-up demand, and if rates fall even further, we could see more activity in the spring.
In the DC, Maryland, and Northern Virginia housing markets, it’s still a seller’s market. The latest data from the Northern Virginia Association of Realtors shows that home sales in the region are down 5.6%, and the median home price is $670,000 — 3.1% higher than the same time last year. However, sales in Alexandria are up 5.8% year-over-year and up by 52.9% in Fairfax City.
Home shoppers who are considering making a purchase soon should take a serious look at new home construction.
Single-family construction held steady in October, according to the National Association of Home Builders (NAHB), as buyers grapple with higher mortgage rates and a lack of existing inventory. Single-family starts are down by 10.6% year-to-date, and builder confidence fell in November. Still, recent economic data suggests housing conditions may improve in the coming months, the NAHB reported.
“The 10-year Treasury rate moved back to the 4.5% range for the first time since late September, which will help bring mortgage rates close to or below 7.5%,” said NAHB Chief Economist Robert Dietz. “Given the lack of existing home inventory, somewhat lower mortgage rates will price-in housing demand and likely set the stage for improved builder views of market conditions in December.”
The NAHB is forecasting a 5% increase for single-family starts in 2024.
As we enter the new year, mortgage rate forecasts are looking good!
Lawrence Yun, chief economist for the NAR, says rates should head towards 7% within the next few months and into the 6% range by the spring of 2024. Doug Duncan, Fannie Mae's chief economist, also believes that mortgage rates will trend downward in 2024, which should encourage homeowners with low mortgage rates to list their homes, kickstarting a recovery in home sales into 2025.
In last month’s housing market update, the Federal Reserve suggested that it may keep interest rates higher for longer than anticipated. Now, “lower slightly sooner than expected" is the new mantra, Reuters reported. The Fed’s rating-setting group unanimously voted to hold the key federal funds in a target range between 5.25%-5.5%. Powell said the Federal Open Market Committee (FOMC) is currently not discussing rate reductions.
I still don’t see a market crash in the near future. There’s still plenty of pent-up demand and not enough supply, which means a rapid drop in housing prices likely won’t happen.
Morgan Stanley predicts a moderate decline in home prices in 2024 — by about 3% — and for sale inventory to increase. Ellen Zentner, Morgan Stanley's chief U.S. economist, says the drop in price should help the housing market, especially aspiring buyers. Zentner also believes that homebuilding activity will be stronger in the second half of the year. By 2025, existing home sales should rise with lower rates.
Economists still expect a soft landing for the U.S. economy, even amidst economic strains and recession fears.
You can read more about my thoughts on why I don’t see a market crash happening soon in an article published on Yahoo Finance.
The Fed declared they aren’t considering rate reductions right now, but this could change soon. In a recent podcast, Guggenheim Investments' U.S. economist Matt Bush said by the second quarter of next year, the conversation could shift toward rate cuts.
All signals point to the economy slowing down, and the market is interpreting this as a Goldilocks: soft enough to prevent additional rate hikes but not enough to fuel recession fears. Bush sees rate cuts by around 150 basis points next year and more in 2025.
So, what does this mean for the housing market?
Homebuyers are dealing with high mortgage rates, elevated home prices, and a tight inventory, while sellers feel “locked in” to their homes by their lower rates. Despite that, there’s still pent-up demand from buyers and sellers. Once the Fed cuts rates and mortgage rates start to go down, we’ll see more inventory from trade-up sellers and more buyers jumping in.
I think pent-up demand will be one of the driving forces behind a real estate boom we could see in 2024 and 2025, similar to what we saw between 2000 and 2007. We’re at the cusp of some big changes, so get ready!
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