According to the latest data from Freddie Mac, the 30-year fixed rate has dropped to 7.22% from a high of 7.79% in October.
Source: Freddie Mac (December 2023)
Melissa Dittmann Tracey of Realtor Magazine quotes Sam Khater, Freddie Mac’s chief economist, as saying:
“Market sentiment has significantly shifted over the last month, leading to a continued decline in mortgage rates…The current trajectory of rates is an encouraging development for potential home buyers, with purchase application activity recently rising to the same level as mid-September, when rates were similar to today’s levels. The modest uptick in demand over the last month signals that there will likely be more competition in a market that remains starved for inventory.”
Jiayi Xu of Realtor.com comments on this rate decrease, highlighting that “the average mortgage rate is projected to be 6.8% in the next year. As mortgage rates are expected to remain elevated, current homeowners with low mortgage rates are expected to stay put, leading to a decline in for-sale inventory…The good news for prospective homebuyers is that affordability is expected to turn around in 2024, though at a slower pace, through a combination of lower mortgage rates and lower prices brought about by cooling inflation and a less frenzied housing market.”
Matt Carter of Inman highlights the mixed signals we are getting from the Federal Reserve on what they intend to do with rates in 2024. At a recent speaking appearance, Jerome Powell deflated expectations that they may start to lower interest rates in spring 2024. Powell dismissed these assumptions as speculation.
Sarah Marx of HousingWire reports that “despite the Federal Reserve’s mixed signals about rate hikes, many investors believe that the Fed won’t hike rates at the next Federal Open Markets Committee meeting on Dec. 13, especially as better-than-expected economic readings come in.”
Nevertheless, in the short term, this translates into savings for homebuyers, according to Marian McPherson of Inman. The downward trend of interest rates has translated into a mortgage payment savings of $164 to an average of $2,575, down from the all-time high of $2,739.
Home prices
Redfin recently announced that it is launching a new housing price index. The Redfin Home Price Index (RHPI) uses a repeat-sales pricing method to calculate how prices of single-family homes change over time. The latest data shows that housing prices increased by 1% between September and October. Although we’ve seen a strong deceleration in 2023 of housing price increases, it appears to be picking back up again.
Source: Redfin (December 2023)
Similarly, the most recent data from the US CoreLogic S&P Case-Shiller Index shows that year-over-year prices rose 3.9%. West Coast housing markets, such as San Francisco and Seattle, posted annual gains, while Midwest metros, like Detroit and Chicago, are experiencing increased housing demand.
Source: CoreLogic (December 2023)
Selma Hepp, chief economist at CoreLogic, comments:
“This suggests that the fourth quarter of 2023 may see a slight increase in home sales compared with last year. At the same time, the availability of for-sale listings has also stabilized to October 2022 levels. If this trend continues, 2024 may start off with more new listings than seen in early 2023. Nevertheless, while the balancing of the housing market is an encouraging sign, lower mortgage rates will be necessary to prompt a sustained increase in home sales.”
Similarly, Reuters reports on Federal Housing Finance Agency (FHFA) data that shows the annual home price growth in the US accelerated again in September, “underscoring the rebound of the housing market as it entered the final quarter of the year.” Price jumped 6.1% year-over-year, up from 5.8% the month prior.
2024 predictions
As we close off the year, we are beginning to see several housing market predictions for 2024. To start, Realtor.com predicts that interest rates will average at about 6.8% next year, with home prices declining 1.7% annually and housing inventory to remain flat.
Source: Realtor.com (December 2023)
“We expect that the return to pricing in line with financing costs will begin in 2024, and home prices, mortgage rates, and income growth will each contribute to the improvement. Home prices are expected to ease slightly, dropping less than 2% for the year on average. Combined with lower mortgage rates and income growth this will improve the home purchase mortgage payment share relative to median income to an average 34.9% in 2024, with the share slipping under 30% by the end of the year.”
Lisa Sturtevant of HousingWire expects pent-up demand from younger generations for homeownership will keep housing prices firm throughout 2024 despite the economic headwinds. This, amidst low housing supply throughout the year, will put upward pressure on housing prices in the new year.
Zillow recently released its 2024 Housing Market Predictions, highlighting that the new year will see more inventory come to the resale market as homeowners come to terms with the reality that interest rates aren’t going down any time soon. “Demand — and prices — for single-family rentals will continue to increase next year as families look for a more affordable option to enjoy amenities like a private backyard or a home that doesn’t share walls with neighbors.”
Finally, Bob Pinnegar of Globe St reports that rental housing will be a bright spot in 2024, given the underlying fundamentals. High housing prices will push more into the rental market, even as a record number of new units come online.
“In the face of testing realities and market uncertainty, the rental housing industry remains a bright spot in the commercial real estate space. At this point, the long-term fundamentals of the market will ensure that while margins may be squeezed in the near term, rental housing will remain a mainstay of real estate investments.”
