January 22, 2024
Articles for Sellers
We’ve crunched the numbers and forecasted interest rates, home sales, and home price appreciation for 2024. For those of you who join us for our Monthly Market Updates, you know we simply take the data from the experts and break it down. Even though we always have our own forecast, we don’t put it out there or say what we think will happen. What’s risky about making predictions is that we have not seen a normal real estate market in almost 10 years. We had the global financial crisis that ended in interest rates of less than 3% in an effort to bring the market back. Not normal. Then the pandemic came and caused all sorts of affordability challenges.
Our forecast right now is so far off from the experts, but yet we are confident in the calculations, so we are going to jump out on a limb and take a deep dive into what we think will be an outstanding year.
Our 2024 forecast comes down to 3-4-5-6. Homes will appreciate in value at least 3%. Nationally, we will see more than 4.5 million homes sold. And the mortgage rate will fall below 6%.
When it comes to home price appreciation, we look to 8 of the real estate leaders. Keep in mind that some of these experts may have released updated figures, but in an effort to compare apples to apples, we are lining up all the forecasters for the last date we have all 8. Overall, they show an average of 1.8% appreciation this year. With our forecast calling for over 3%, it is a big leap, and only time will tell.
One of the reasons for almost doubling the expert forecasts is looking at Fannie Mae’s Home Price Expectation Survey, because it comes out quarterly. It is produced in partnership with Pulsenomics, and polls over 100 housing experts across the industry and academia for forecasts of national home price percentage changes in each of the coming 5 calendar years.
They are projecting 2.35% for 2024, so closer to our 3%, and with the current interest rate trend, that is likely to get adjusted up in their Q1 2024 report to account for the recent mortgage rate drops.
Home price appreciation is important in so many ways. Most importantly, it is how millions on families can build generational wealth.
According to these projections from the Home Price Expectations Survey, purchasing a $300,000 home this month could make $70,055 over the next 5 years.
When deciding to buy versus to rent, it is important to take into account that you aren’t just losing out on the opportunity to make $70,055, but you are spending $150,000 to rent in that time – and that is assuming your rent doesn’t increase at all over 5 years. So, it’s really a potential loss of $220,055. A life-changing amount of money.
It is hard to look at recent home sales, since the market has been so turbulent – we have averaged -4% in total homes sold over the last 5 years. Obviously figures that don’t help determine a proper forecast for 2024. With our forecast calling for over 4.5 million homes sold in 2024, that equates to a 10% increase over last year.
And it’s been 26 years since we have seen a year-over-year increase of total homes sold at or above 10%. So, again, 4.5 million is a big leap, and only time will tell.
One of the biggest reasons for this forecast are the mortgage rates.
The mortgage rates have fallen in recent weeks, but the market is still volatile, so that doesn’t mean much. Plus, there are a few factors working against the logic that rates will continue to fall, or do so drastically.
First, according to the Federal Housing Finance Agency, 78.7% of mortgage loans were less than 5% at the time of origination. That means only about 20% of homeowners are likely to consider selling at a rate just under 6%. It won’t matter how many buyers are out there, if there are not homes for them to buy. That brings us to inventory…
Second, inventory is one of the biggest reasons buyers paused their homebuying plans.
We have been in a seller’s market (less than 6 months inventory on hand) for 11 years. Why?
First, because 78.7% of homeowners have a record-breaking mortgage rate. These folks are likely only selling if they have to due to a big lifestyle change, or if they are able to move without getting another mortgage.
Second, we are coming out of a 14-year lull in new construction builds. That was obvious in November when new construction accounted for 31% of home sales – compared to the 12% historical average. And builders are doing buy downs (buying down the rate with their proceeds), so getting a new home at a 4% or 5% interest rate right now with builder incentives is hard to pass up.
Taking all this and more into consideration, the experts are predicting about 6.5% by the third quarter of this year. Our forecast calling for a mortgage rate below 6% this year is yet another big leap, and only time will tell.
Despite all these factors working against such an aggressive forecast, we did find some inspiration in the 10-year treasury rate.
There is a sort of symbiotic relationship between the 10-year treasury rate and the 30-year fixed mortgage rate. For the past 50 years, the difference between the two (the spread) has been 1.72%, where the mortgage rate follows the treasury yield plus 1.72%. For example, if the treasury yield is 5%, historically the mortgage rate would be about 6.72%. However, that spread has widened due to the turbulence in the market, and today the difference between the two is 2.78%. Although we might not get back to a 1.72% spread, we do believe that as the market finds its new normal, the spread will normalize again, as it has in the past – perhaps to 2%, which would make a mortgage rate below 6% likely.
2024 is going to surprise us all – in one way or another. Forecasts, projections, and predictions are all rooted in historical data, which has been thrown out the window these past few years. What we hope to see this year is a 3% increase in home values, 4.5 million homes sold, and a mortgage rate below 6%. As always, we will keep an eye on the numbers and re-forecast monthly, but are excited to see what the year will hold.
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