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The past few years have exaggerated the cyclical nature of real estate, with once-in-a-lifetime mortgage rates leading to a sudden and historic boom in home sales in 2020 and 2021.Then the winds shifted and locked consumers under pressure from rising mortgage rates, falling inventories and sticky inflation, leading to Home sales hit 30-year low.
Fortunately, 2024 is expected to see slower mortgage rate volatility, slower inflation growth, strong employment and unemployment reports, and Unusual increase in new listings in late winter. Several economists told Inman that even as positive signs emerge like newly sprouted grass, broader economic conditions are making homebuyers more anxious than ever.
“I expect this spring to be a mirror of last year,” said George Ratiu, an economist at Washington Consulting. “While there has been hope and optimism that we would hit bottom in 2023, when you look at the overall picture, whether it’s economic, monetary, financial or personal, there are some similarities.”
“Consumers’ financial budgets are a little wider (than in 2023). Consumer debt, credit card debt, auto loans are all higher than a year ago,” he added. “That’s why they feel out of sync with some of the more positive economic data.”
George Latiu
Ratiu said the labor market and income and wage growth in 2024 will be the same as in 2023, with average hourly earnings increasing by 1.4% year-on-year from January 2023 ($11.01) to January 2024 ($11.15).Even though Americans are making more, they’re still spending more The consumer price index rose 3.1% Year after year, the cost of housing, food and electricity continues to struggle to keep up with inflation.
On top of that, Latiu said, homebuyers and sellers are still dealing with stubborn mortgage rates. Prices fluctuate daily; however, the average interest rate on a 30-year conventional loan is 6.9%, an increase of 0.2 percentage points from March 2023.
“They’re under increasing financial pressure, but I think we’ll be out of it next year,” he said. “I don’t think we’re completely out of the woods even this spring.”
Blame it on mortgage rates
As in 2023, mortgage rates will continue to be a major source of distress for homebuyers and home sellers. According to a March 2023 report by Inman Intel, home sales will fall by 5% to 10% for every 1 percentage point increase in interest rates.
The impact of mortgage rate fluctuations has been fully reflected in 2023, with interest rates falling to 6.15% in January, resulting in a significant 25% increase in mortgage rate applications compared to the previous quarter.
The jump fueled hopes for a strong spring. However, by March, interest rates were back to 6.8%, a shift that caused existing home sales to decline at an annual rate of 22%. The annual decline in existing home sales fluctuated from 23.2% in April to 20.4% in May, then dropped to 18.9% in June, the last month of meteorological spring.
A similar trend was seen in the first week of March, with mortgage rates falling to 7.02%, resulting in an 11% increase in mortgage rate applications from the previous quarter. However, it remains to be seen how this will impact existing home sales in March.
Trade Economics Chart | Subtitles by Inman
Matthew Gardner
Former Windermere chief economist Matthew Gardner says mortgage rates are likely to have the same impact on house sales in the coming months as the idea of voluntary home buying continues to falter amid the “lockdown effect” A one-two punch.
“I think we’re still going to be in a similar situation to last year,” he said. “We’ve talked about this before, but they don’t want to lose the number of households (which are a lot) that have very low mortgage rates.”
“If sellers move and need to borrow money to purchase their next home, they may be looking at an interest rate that is close to double the rate they currently hold,” he added.
January 2024 Redfin Report Put the numbers into Gardner’s statement. A shocking 88.5% of homeowners have interest rates below 6%. 78% had a ratio below 5%, 59.4% had a ratio below 4%, and 22.6% had a ratio below 3%.
These numbers are down from 2022, when 93% of homeowners had mortgage rates below 6%. However, that’s still enough to keep home sellers on the sidelines.
“Let’s say your mortgage rate is four percent and you’re happy with what you’re paying,” Gardner says. “Now, let’s say if you want to keep your payments the same at a 5% interest rate, you have to borrow 10% less (than your current mortgage).
“That means this spring we will see transactions that occur for three of the four traditional reasons: job changes, deaths and divorces. We will miss the fourth (reason), which is discretionary,” he added road.
While the effects of lockdown are still at play, Gardner said he expects sales to be up 10% from last year, which was down nearly a quarter from 2022 levels.
“Things are still going to be tight because there still won’t be that many homes for sale,” he said. “So options are still limited.”
Darryl Fairweather
Redfin chief economist Daryl Fairweather said mortgage rates would have to fall below 6% for the effects of the lockdown to finally begin to ease.
“Falling mortgage rates will encourage some buyers to pull the trigger and make a purchase,” she said of the moderation in interest rate volatility compared with 2023. “But for things to really get back to normal, I think mortgage rates would need to fall by almost six percent.”
“(A drop) could indeed happen at any time depending on how the economic data changes, but we predict rates may only fall to 6.5% this year,” she added. “So I think it’s probably a little bit more likely that we’ll get to 6% or lower in 2025.”
The Dilemma of First-Time Home Buyers
Let’s put it simply—homebuyers have a tough time.
Median prices for existing homes ($379,100) and new homes ($420,700) broke January records.Combined with the average monthly mortgage rate of 6.62%, buyers will be faced with The average monthly mortgage payment is $2,188; This number is 96.4% higher than the 2020 average.
“I do expect this to remain a very challenging market, especially for first-time homebuyers who have to overcome multiple barriers such as down payments, credit scores and income,” Latiu said. “If mortgage rates are Months continue to rise, which for many buyers effectively means they will be looking to lower their home budget – which is difficult when you see current price trends.”
IBuyer Opendoor shines a light on the sacrifices first-time homebuyers make to achieve their homebuying goals Survey of 1,000 respondents People who purchased a home between January 2023 and December 2023.
Only 23% of first-time buyers purchased a detached home. Most people buy with a spouse or partner (61%), parents (16%), friends (11%) or siblings (7%).
Nearly 90% of first-time homebuyers told Opendoor they made compromises when purchasing, with 32% buying in an area they didn’t want to live in, 28% giving up key features on their must-have list, and 22% buying in an area they didn’t want to live in. People purchased smaller homes.
Even with these sacrifices, 43% of respondents said they still spent more than they budgeted for their home.
Gardner said data like this provided important context for the declining share of sales to first-time buyers.
“According to the (National Association of Realtors), the share of first-time (buyers) in January was 28%,” he said. “This is not an all-time low. The all-time low is about 27%, and we saw that multiple times last year and the year before that. But we’re still close to an all-time low.”
All three economists said homebuyers, especially first-time buyers, are doing everything they can to stay in the market, whether they own a home with a partner or friends or buy separately to rent out extra rooms. Or avoid being single. Family single-family homes are apartments and townhouses, and more aggressively negotiate prices for homes that are slow on the market or to relocate to cheaper areas.
“Through February, we saw a 22% increase in the number of properties with price reductions, which is another indicator for homeowners who may have had their homes on the market for a few months,” Ratiu said. “The reality is that while supply remains scarce and prices remain firm, there is still plenty of room for negotiation. These are important considerations for first-time buyers.”
Gardner, meanwhile, focused on a second, smaller shakeup than the one the market experienced in 2020, when remote workers fled cities early in the pandemic. Boomtowns like Boise and Austin in the early days of the pandemic have become unaffordable, forcing hungry buyers to turn to smaller secondary and tertiary markets like New Bern, North Carolina; Oshkosh, Wisconsin; ; and Reading, Pennsylvania.
“If you think about some of the historically cheaper markets … they are becoming very unaffordable,” he said. “Riverside, California, is a great example. Historically, it was very affordable, but now it’s one of the most unaffordable housing markets.”
“People are moving from the Los Angeles basin to the riverfront because of the price,” he added. “That makes it unaffordable for some families who may have lived there for generations. Now they have to move further out to own. It becomes very difficult.”
Fairweather said that while first-time homebuyers struggle against headwinds, repeat buyers with deep pockets are likely to make it through the spring.
“There are still buyers who are not that sensitive to interest rates. They are paying in cash, if not all in cash, and they are putting a lot of money into reducing the size of their mortgage,” she said. “There are enough of these people (to maintain sales). Sellers are still able to take these high-value homes and sell their homes at a high price.”
When will it get better?
Latiu, Gardner and Fairweather said that while the past few years have proven the folly of “judging by the tea leaves,” current economic data suggests that by 2025, the market will return to historically normal levels – if If the Fed succeeds in curbing inflation without putting the country in trouble. economic recession.
“The economy is different now than it was before the pandemic,” Fairweather said. “Remote work is a very different dynamic, which means more people may be able to work now than before the pandemic. If you have a disability or caregiver Or, you have more job options.”
“I think it’s possible for the economy to grow without putting more pressure on inflation,” she added. “this (January) Employment Report In terms of economic growth, it’s looking good, and I don’t really see too many negative impacts. This depends on the Fed’s ability to control inflation. “
Latiu said that while the trajectory of the economy and housing market is largely a quantitative task, special attention must be paid to understanding how people are feeling about the market because feelings have the power to turn the economy around.
“We tend to look at numbers, we tend to look at data,” he said. “Then we say, ‘OK, based on what we’re seeing now, where we think the market, the economy, consumer confidence, etc. are going.”
“But most of what we humans use to make decisions comes from gut feeling. No matter what the numbers say, I feel confident or not,” he added.
Latiu said the improvement in consumer confidence, which depends in part on the Federal Reserve and its monetary policy, will be the key to ultimately unfreezing the market’s deep freeze.
“The emotions are often as important as the numbers,” he said. “We don’t want to get caught in a spiral of doom.”
Email Marianne McPherson
