At beginning of the year and even in February blogs/videos, I have eluded to the expectation that we will see rate cuts this year which might help the Real estate market. But seems like that’s not going to happen.

• Hot economic indicators in 2024 challenge the anticipation of Federal Reserve rate cuts. A robust economy with a 3.3% GDP increase, 353,000 new jobs in January, and a 3.1% inflation rate may keep interest rates high.
• Stocks might still perform well despite high interest rates, but bonds and real estate could face significant challenges. The S&P 500 is expected to yield strong returns, not because of potential Fed cuts, but due to the groundwork laid by previous Fed policies.
• The commercial real estate sector, especially office spaces, is under pressure from the Fed’s high-rate environment. With a looming debt maturity wall, property owners face refinancing at higher rates and lower valuations, potentially leading to $1 trillion in losses in the office market.

In the residential sector, failure to bring rates down meaningfully would lead to another year of frozen markets. It would likely be a repeat of last year, when inventory was woefully low and sales were the lowest since 1995. 

“The real estate market would be undercut by the Fed’s failure to cut interest rates,” according to analysts.

With that being said, you never know about Feb and they might come out and do rate cut in Jun to boost home buying. But they don’t, then we are going to see repeat of 2023 and market is going to build inventory and many buyers and investors might stay away and continue to rent like they been doing since end of 2022.

Again, another waiting game but most likely seems like we might get a boost from my prediction..

Many expected the mortgage rates to slowly drop this year as the economy is doing good and steady and there is no Fed rate increase. But things are happening in opposite direction as of Feb 8th, 2024.

• Mortgage rates have surged over 7%, with the 10-year bond yield jumping back over 4%. This increase is 40 basis points higher than a month ago and 100 basis points higher than a year ago, potentially impacting buyer momentum.
• Inventory levels are falling each week, a common trend for February, but inventory is 8.8% higher than last year. There are currently 497,000 single family homes unsold across the US, indicating a slight increase in sellers compared to the previous year.
• Home prices continue to rise despite high mortgage rates, with the median price of single family homes in the US just under $425,000. Prices are a few percent higher than last year at this time, suggesting strong buyer demand and a market that could hit new all-time highs by May.

What’s going on?

Important reason is that US Job market outperformed expectations in Jan 2024 with surging job numbers. That made Fed Reserve to act conservatively and not to cut rates and make any drastic move till May/Jun. Because of that decision and bond markets going high, interest rates have gone up to 7%. See the image below.

• The U.S. job market outperformed expectations in January 2024, with a significant surge in job growth and unemployment remaining low. Employers added approximately 353,000 workers, marking the largest one-month gain in a year and nearly double the rate economists forecasted.
• Job gains were widespread across major industries, with notable expansions in Education and Health Services, Professional and Business Services, and Trade, Transportation, and Utilities. This broad-based growth indicates a resilient and expanding job market, despite high interest rates.
• The unemployment rate held steady at 3.7% for the third consecutive month, maintaining a level below 4% for two years—the first occurrence since the late 1960s. Average hourly earnings rose by $0.19 from December to January, highlighting ongoing wage growth that surpasses rising prices.

What does it mean now?

Many are still expecting to have the Fed rates cut in the month or so to help the real estate market but we cannot be sure. If no cuts in the rates, that would keep the interest rates possibly on the higher side depending on the bond movement which is major player. Only mortgage rates going done will have major impact in the housing market in many markets.

Let’s hope for better rates to help consumers to buy more affordable homes!!

• Buffalo, New York, is anticipated to be the leading housing market in 2024. This prediction is based on Zillow’s comprehensive analysis of real estate trends.
• The forecast suggests a shift in housing market dynamics. Factors like affordability, job market conditions, and demographic trends are influencing this change.
• The broader housing market is expected to see more homes for sale and improved affordability. This trend indicates a potential easing of the tight market conditions experienced in previous years.

A Look Back at 2023 US New Home Sales Activity link

In 2023, new home sales in major metro areas declined, with New York experiencing the largest drop. New home prices increased by only 2% through November 2023, a significant slowdown compared to the 10% growth in 2022. The South, particularly Dallas and Houston, led the U.S. in new home sales. In contrast, New York’s new home sales were predominantly condos, making it an outlier in the top 10 Metropolitan Statistical Areas for new home sales. Overall, the U.S. housing market saw a sharp decline in home sales since 2021. High interest rates in 2023 dampened demand, and builders lacked incentives to return to pre-2021 construction levels. However, active investors in the market may provide some demand for new home sales.

Key Forecast Themes for 2024 link

The 2024 forecast anticipates continued economic growth, albeit at a slower pace, with strong wage growth and extended renter lifecycles driving demand. Supply is set to be the main factor influencing market-level rent growth, with a direct correlation between supply levels and rent growth rates. Absorption rates have stabilized in 2023, with about 250,000 units absorbed, aligning with the U.S. average since the 2010s. The fourth quarter of 2023 saw particularly strong demand, indicating a robust capacity to absorb the significant supply expected in 2024. Rent growth slowed considerably in 2023, with a year-ending growth of only 0.2%, but there’s a slight upward trend in rent growth momentum. The focus in 2024 is expected to shift towards occupancy preservation, with modest rent growth and significant market-level variations, especially in regions like the Midwest and Northeast.

The last two years have seen marked increases in mortgage rates across the country. Prospective homebuyers are increasingly concerned that rising interest rates will prevent them from homeownership, and everyone wants to know when mortgage rates will start to decrease. 

But the answer isn’t that simple. Mortgage rates are influenced by a set of factors that can rarely be predicted or controlled, causing alarm for prospective buyers and mortgage professionals. Though the forecast for next year sounds positive, let’s look at what various experts are predicting for mortgage rates in 2024. 
 

Overview of the Federal Reserve Interest Rate Hikes 

In March 2022, the Federal Reserve raised interest rates 0.25% for the first time since December of 2018. At the time, only six more hikes were expected in response to marked inflation across all industries including petroleum, food, and shelter. Although the goals of rate hikes are to stabilize the price of goods and services and prevent a spike in unemployment, the cost of borrowing does, consequently, increase. As a result, prospective homebuyers have found themselves in a dilemma as they seek out home loans with favorable interest rates and prices they can comfortably afford.  

To date, the Federal Reserve has initiated 11 interest rate hikes in 2023. The national average mortgage interest rate is currently around 7.59% for a 30-year fixed mortgage (September 2023 data). Prognosticators are hopeful, however, that these rates will decrease at some point in 2024.  

What Mortgage Experts Think Will Happen in 2024 

Several experts from the financial sector have weighed in on the interest rate hikes and given their best educated guesses on when the country will see a decrease. The general sentiment is that the rates will come down; the debate, however, is when prospective homebuyers can expect to see some relief – and just how much.  

The End of 2023 

According to the chief investment officer of J.P. Morgan’s Asset Management division, Bob Michele, the Federal Reserve may begin to lower interest rates by the end of 2023. His prediction is based on the Federal Reserve’s backtracking on the initial statement that inflation in 2021 and 2022 was transitory. He posits that as the end of the year approaches, the inflation target will be reached and the Federal Reserve will again back down on raising rates, and even lower them.  

First Quarter Interest Rate Predictions For 2024 

Preston Caldwell, a senior economist for Morningstar, believes that the Fed will begin to pare down interest rates in February. Caldwell believes that by the first meeting of 2024, inflation will fall to the 2% target. This will lead to the 30-year mortgage rate decreasing to around 4.5% by 2025. 

Second Quarter Predictions For 2024 

The chief economist for KPMG, Diane Swonk, has called the journey to lower inflation one that is “littered with potholes.” Swonk says one such pothole came in August and even though the Fed decided to pause the rate hikes, in November they may exercise the option to restart them. If inflation continues to be a problem at the end of 2023, we could see another hike because the Fed likes to see quarters of lower inflation instead of singular months. She forecasts that interest rates will not be cut until May 2024.  

The chief US economist for Goldman Sachs, David Mericle, agrees with Swonk. On a recent episode of the podcast Goldman Sachs Exchanges, he noted that the second quarter of 2024 will see a decrease in interest rates, yet he did not predict a specific time at which this could happen. Citing a lag in inflation that will eventually normalize, he dismissed concerns of a recession, and is hopeful that inflation will hit the 2% sweet spot needed to trigger a decrease in interest rates.  

Latter Half of 2024 Predictions 

Vanguard’s global economics team shared its insights on the matter from a global perspective in a letter dated September 14, 2023. Their perspective is that either inflation must decline further, or a recession must happen before the Fed acts to ease interest rates.  

At a meeting of the American Bankers Association’s Economic Advisory Committee, members  predicted that the Fed is mostly finished with its rate hikes and that next year between May and the end of the year, interest rates should begin to decrease by 100 basis points (1%). 

A Word From The CE Shop’s Mortgage Expert 

Michelle White, the National Mortgage Expert for The CE Shop, offered her thoughts on where mortgage rates could be headed next year. According to White, the data is not strong enough to suggest a political link to interest rates as it was in the past, yet the upcoming election cycle could have an impact. Overall, her forecast suggests that rates will lower between 1% and 1.5% at the most at some point in the year.  

What Leading Organizations Foresee For 2024 Interest Rates 

Fannie Mae, National Association of Realtors®, and Mortgage Bankers Association have all offered their predictions for the mortgage market through all four quarters of next year. While their predictions differ in terms of how much rates will decrease, there is a definite consensus that 2024 will be the year for some relief. The following chart shows each organization’s forecast for the rates on 30-year mortgages.  

	Q1 2024	Q2 2024	Q3 2024	Q4 2024
Fannie Mae	6.8%	6.6%	6.4%	6.3%
National Assoc. of Realtors®	6.1%	6.0%	6.0%	6.0%
Mortgage Bankers Association	6.1%	5.8%	5.5%	5.4%

Important Things to Remember About Interest Rates 

Mortgage interest rates are subject to influences, such as market fluctuations. These changes are often due to factors that are beyond human control such as pandemics, war, governmental operations, and other current events that are generally unpredictable. As such, even for economists and other financial experts, it is difficult to determine what interest rates will do from one year to the next.  

If you’re a prospective homebuyer who is concerned about the right time to buy a home, it’s important to consider the current financial standing, the location of the property, future plans for the property (how long you plan to live there), and future refinancing options.   If you’re already in the mortgage industry, staying up-to-date on current mortgage trends and maintain your continuing education to understand how to best serve your clients as the economy changes. While rates are currently high, waiting to buy may put buyers at risk for rates to be even higher months from now.

Courtesy of OMREALTYGROUP.THECESHOP.COM