Expect rate cuts in 2024, according to experts and the Federal Reserve. Logan Mohtashami of HousingWire comments, “[t]he Federal Reserve played the good grinch for Christmas this year and delivered the best gift for homebuyers nationwide, leading to lower mortgage rates. The 10-year yield and mortgage rates fell together after the Fed meetings, which gave us mortgage rates under 7% last week.”
Rachel Witkowski of Forbes notes that experts believe the Federal Reserve will start to cut rates in the first half of 2024. Projections are that 2024 will end with a Federal Funds rate of 4.6%, down from the current 5.33%. This will be a meaningful relief for those looking to buy or sell a home and will likely spur a more robust spring homebuying season.
Robert Dietz of the National Association of Homebuilders (NAHB) reports on interest rates, highlighting that despite the call to lower rates in 2024, the Fed’s aggressive rate hike cycle will continue to put downward pressure on economic activity in the new year.
Source: NAHB (December 2023)
“The Fed however missed an opportunity here to cite the outsized role shelter inflation has played in recent CPI reports. The high cost of development and home construction is slowing the fight against inflation. State and local governments could assist the fight against inflation by addressing the root causes of these rising costs.”
Orphe Divounguy of Zillow comments on the cooling interest rate environment, noting that many economic factors point to a continued downward trend for inflation. These include slowing the monthly growth in the core Personal Consumption Expenditures (PCE) index (the Fed’s favorite inflation gauge) and decreasing factory orders.
Multifamily update
According to Freddie Mac, Q3 2023 saw the Multifamily Apartment Investment Market Index fall to 107.1 nationwide, with all 25 regional markets down for the quarter. Overall multifamily property prices decreased 11.9% year-over-year, and NOI grew by only 0.3%. Sara Hoffmann, director of Multifamily Research at Freddie Mac, comments:
“After last quarter’s rebound, the third quarter decline in AIMI is primarily attributable to the significant increase in interest rates…The slight annual increase is notable, and largely the result of a substantial contraction in property prices, which offset the effect of markedly higher mortgage rates.”
Yardi Matrix released its most recent multifamily report, highlighting that negative rent growth is intensifying. Overall “[m]ultifamily rents are stalling, reflecting both seasonality and reaching the tail end of the post-pandemic bull run. The average U.S. asking rent fell $6 to $1,713 in November, while year-over-year growth remained the same, at 0.4%.” Further, overall occupancy is decreasing slowly.
Source: Yardi Matrix (December 2023)
As the market cools, The Real Deal reports that Lennar Homes is partnering with JLL to sell an 11,000-unit luxury multifamily portfolio worth approximately $4.5 billion. This comes amidst a 62% decline in multifamily sales volume in 2023.
Patrick Sisson of Bisnow National comments on the slowing market, noting that after years of growth, owners and operators are now looking inward to increase efficiencies and reduce operational expenditures to keep net operating incomes elevated.
That said, according to CoStar, there is still strong demand in specific markets, mainly Midwestern, for multifamily assets.
Source: CoStar (December 2023)
2024 top markets
As we look to close off 2023, many outlets are forecasting what the trending markets will look like in the new year. Data from Realtor.com indicates that sales growth will be the main propellant for top housing markets in the new year, and more affordable markets in the Northeast, Midwest, and Southern California are expected to rebound stronger from the sales declines in 2023.
Source: Realtor.com (December 2023)
“Moreover, the top markets in the Midwest and Northeast also exhibit a degree of insulation from the impact of higher mortgage rates, largely due to a higher proportion of homeowners in these areas residing in housing units without a mortgage. The most recent American Community Survey indicates that, on average, 37.9% of homeowners in these top markets lived in homes without a mortgage, slightly surpassing the average share (36.7%) of the 100 largest metros.”
The National Association of Realtors (NAR) joins the conversation by predicting that existing home sales will jump 13.5% in the new year. Further, Austin, Dallas-Fort Worth, Nashville, Philadelphia, and Washington, D.C., were among NAR’s top 10 housing markets based on pent-up housing demand.
Source: NAR (December 2023)
With Austin taking the top spot, James Faris of Business Insider comments on why this market is looking so good heading into 2024:
“This region boasts one of the largest pools of ‘returning’ buyers. If interest rates drop to 6.5% in 2024, 5.1% of all households will once again have the means to afford the median-priced home. Despite ongoing housing cost challenges, a notable trend is emerging as many Millennials earning over $100,000 are relocating from other states to this market. While prices seem to be very sensitive to market changes, the influx of these high-earner Millennial renters, coupled with the presence of ‘returning’ buyers, is anticipated to fuel growth in the local housing market.”
