Real Estate Market Update: December 2023

Falling mortgage rates … it’s the gift that keeps on giving!

The Federal Reserve held interest rates steady for the third time and signaled three rate cuts coming in 2024. Inflation continues to ease, and policymakers on the Federal Open Market Committee (FOMC) voted unanimously to keep the benchmark rate between 5.25%-5.5%. According to CNBC, committee members have planned at least three rate cuts in 2024, which is more aggressive than previously stated.

As a result, the 30-year fixed mortgage rate reached its lowest level since May 2023. The Mortgage Bankers Association stated that borrowers’ reactions are tepid, but Freddie Mac sees a rebound in the housing market heading into the new year.

Here’s my latest housing update and predictions for 2024!

December Real Estate Housing Update

Across the country, the median existing-home price for all housing types was $387,600 in November — up 4% year-over-year, according to the National Association of Realtors (NAR). This is down from $391,800 the previous month. The National Association of Home Builders (NAHB) reported that the median new home sale price in November was $434,700, up 4.8% month-over-month.

Mortgage rates rapidly descended in December, reaching 6.61% for a 30-year fixed-rate mortgage as of the end of the month, down from 6.67% the week before, according to data from Freddie Mac. This rate decline should motivate more buyers to jump into the housing market.

After five consecutive months of declines, NAR data shows that existing-home sales increased by 0.8% from October to November. Year-over-year, sales weakened by 7.3%. However, NAR Chief Economist Lawrence Yun says this latest sales data still reflects the buyer bidding process when mortgage rates were at a two-decade high.

"A marked turn can be expected as mortgage rates have plunged in recent weeks," Yun said.

Not much has changed in the DC, Maryland, and Northern Virginia housing markets since my last market update. The Northern Virginia Association of Realtors says the residential market has not yet reached a post-pandemic normal and expects home values to continue to increase due to historically low housing inventories across the region. Housing in Virginia appreciated 42%, so homeowners in the DMV are sitting on a lot of home equity!

Is Now a Good Time to Build a House?

New construction sales were down in November, but the NAHB says it should improve moving forward as mortgage rates decline and builders regain confidence!

Sales of newly built, single-family homes fell 12.2% in November — the lowest annual rate since November 2022. However, sales are up 3.9% on a year-to-date basis due to a lack of resale inventory. New home inventory also jumped to the highest level seen since November 2022, rising 16.5% from the previous month. This represents a 9.2-month supply at the current building pace.

“New home sales activity should improve in the months ahead as mortgage interest rates settle in below a 7% rate,” said Alicia Huey, chairman of the NAHB. “Our latest builder survey turned positive in December, with builders indicating they expect a rise in future sales.”

Will Mortgage Rates Keep Going Down?

The new year should be a welcome break after relentless mortgage rate increases throughout most of 2023.

Mortgage rates have retreated from peaks near 8%, and experts predict it’ll fall further once the Fed starts cutting the benchmark rate. Housing economists all expect mortgage rates to remain below 7% in 2024, BAM reported. However, none expect them to dip below 6%.

As rates continue to fall and affordability improves, more homebuyers should enter the market. November’s REALTORS Confidence Index shows that first-time buyers represented 31% of all buyers, up from 28% the month before. This was still when mortgage rates were high, but as rates ease even more, NAR deputy chief economist and vice president of research Jessica Lautz says first-time buyers may edge close to the historical norm of 38%.

Are Home Prices Dropping?

At the start of 2023, it seemed as if we were finally getting some relief from the post-pandemic demand that resulted in an almost 20% year-over-year home price appreciation, according to Freddie Mac’s December 2023 Economic, Housing and Mortgage Market Outlook report. The slowdown was a result of rising rates and the deterioration of housing affordability in 2022 and into 2023. 

But in the second half of 2023, home price growth re-accelerated, thanks to the mortgage rate “lock-in” effect that prevented existing homeowners from giving up their low rates and supply remaining tight. 

"Home prices keep marching higher," Yun said. "Only a dramatic rise in supply will dampen price appreciation."

Will the Housing Market Crash or Recover?

A large number of Americans (44%) believe the housing market could crash in 2024, according to a recent LendingTree survey, but economists are a little more optimistic.

The U.S. real estate market still severely lacks housing inventory. When there’s demand and not enough supply, prices cannot crash.

Fannie Mae predicts a slow but meaningful recovery over the course of 2024, as well as upward-trending mortgage activity. Purchase applications have rebounded 15% from November, but affordability challenges, the lock-in effect, and low supply will likely persist.

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.

Housing Market Predictions 2024

In Fannie Mae’s most recent Home Purchase Sentiment Index, only 14% of consumers believe it’s a good time to buy a home — a survey low — and many existing homeowners are “locked-in” and unwilling to give up low mortgage rates. In an interview with Business Insider, Yun says homebuyers in 2024 will likely see increased competition and multiple offers on homes, driving prices up further.

Still, most economists don’t expect any drastic changes in home prices in 2024, BAM reported, but lower mortgage rates will improve affordability. As builder confidence increases, we’ll likely see more new home construction, which should help boost inventory and new home sales.

Increased competition and multiple offers, as Yun predicts, is what’s needed for a real estate boom that I predict we could see in 2024 and 2025. Times are still tough, especially when it comes to affordability and finding the right home, but that’s why partnering with an experienced real estate agent is a must in this market.

Looking to buy or sell in the DC area? Don’t navigate the housing market alone! Reach out today for expert real estate leadership.