My take on the 2024 Housing Market
We might finally see the last rate hike in the near term. Buyers have been squeezed on both ends since 2020, facing challenges each year in a low inventory, high-interest rate environment. While lower rates would be excellent, certainty is what we want.
I think rates could come down slightly in 2024, and here's why. The typical spread between the 10-year Fed funds rate and the 30-year mortgage rate is the largest in a long time. It's currently at 2.96% when it's only 1-2%. This spread is significant because it reflects the premium charged on mortgages to account for the possibility that homeowners refinance their higher interest rate loans obtained over the last year. To compensate for this, mortgage rates are slightly higher than they would be relative to the 10-year Treasury.
This dynamic is a tailwind for inventory and transaction volume. As interest rates move lower, homeowners might be willing to refinance from their higher interest-rate mortgages, which can free up more homes for sale. These potential sellers are a crucial part of the market that we're currently missing. Because sellers ultimately become buyers, new buyers will adjust to the fact that they've found the best they can get.
However, while interest rate cuts would greatly benefit real estate, we must be cautious in our expectations. The Fed wouldn't cut interest rates simply because the economy is doing well and everyone is employed. They would likely do so for the opposite reason: large-scale job losses, prolonged slow growth, and a looming recession could motivate the Fed to cut rates after aggressively hiking them over the last 18+ months.
Despite these uncertainties, demand is incredibly pent up, and stabilizing rates will drive new activity. If rates begin to come down, I'm confident we'll see that demand materialize in the spring. Even if the Fed doesn't cut rates, we could see a reduction in mortgage rates regardless. Millennials, now in their prime buying years, along with the upcoming Gen Z, are significant players. On average, both groups believe strongly in the power of homeownership, which bodes well for the market's future.
Other Housing Market Highlights
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There are 7.4 months of housing inventory supply, just above the five-year average but 40% lower than November 2022.
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The median closing price in November was $1.12M, up .9% over last year.
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According to Wells Fargo, as of December 8, 2023, the average rate on a 30-year mortgage hit 6.718%.
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October 2023 saw the U.S. inflation rate at 3.2%, slightly exceeding the Fed's targeted goal of 2%. 📊"
Sales Inventory
Concerning much-needed inventory, the housing supply has been meager throughout 2023 thus far. In Manhattan, there are currently 6,575 homes for sale, a decrease of 3.2% year over year. Meanwhile, pending sales have significantly increased, up 33.5% to 2,449.
Will home prices go down?
Probably not in a significant way. Because of the slower speed at which we move in the NYC market, prices will be less volatile than in the rest of the country. That's a good thing! On average, according to FHFA data, prices in the NYC metro area appreciate by about 3% a year over the long term. That said, prices must significantly enjoy to break even when it's time to sell. Owning a home for seven years is a good rule of thumb to ensure you'll break even when selling your home.
Do buyers or sellers have the advantage?
I think it's a buyer's market, and buyers have the advantage. I would deem today's sellers to be incredibly serious. They've known for a long time that the current interest rates have made transactions challenging to afford. I'd encourage buyers to place offers on homes they love. As stated above, we could see increased demand in the spring if rates come down next year.
