In 2024, potential homebuyers find themselves cautiously optimistic about the prospect of relief on mortgage rates, propelled by the Federal Reserve's decision to conclude its two-year credit tightening campaign and shift toward easing rates. This pivotal move, announced on December 13, coupled with expert projections, paints a picture of evolving dynamics in the real estate market.
Matthew Vance, Americas head of multifamily research at CBRE, suggests an imminent shift in federal funds rates, anticipating the first rate cut in March 2024. Jessica Lautz, deputy chief economist at the National Association of Realtors (NAR), foresees incremental declines in mortgage rates, aiming for them to reach the 6% range by the spring of 2024. The pause in the Federal Reserve's rate hikes in September has already led to a notable decline in the average 30-year fixed-rate mortgage rate, providing a glimmer of affordability for prospective buyers.
However, this positive news on mortgage rates is juxtaposed against the persistent challenge of reducing home prices. Limited housing supply has sustained a four-month consecutive rise in home prices, reaching a median of $391,800 in October, up 3.4% from a year ago, according to NAR data. The shortage of affordable homes remains a critical issue, necessitating a substantial increase in housing supply—a process likely to extend over several years.
Vijay Marolia, managing partner and chief investment officer at Regal Point Capital, suggests that if the era of Fed rate hikes is indeed over, the upward trajectory of home prices should slow down in the next three to six months. However, achieving a balance in the housing market will require time, particularly given the current shortage.
Expectations point to the Fed initiating rate cuts in the first half of 2024, potentially bringing the fed funds rate to an estimated 4.6% by the end of the year, according to CBRE projections. Two additional rate cuts are anticipated next year as the economy slows, contributing to a rise in the supply of for-sale homes. Even a modest rate decrease can have a meaningful impact on consumers, potentially saving them a few hundred dollars a month, as highlighted by Lautz.
For those finding the current combination of high home prices and loan rates financially challenging, experts recommend a strategic approach. Waiting and using the time to save for a larger down payment, especially when traditional savings products offer attractive yields, could be a prudent financial move. In this dynamic landscape, the intersection of market conditions, Federal Reserve policies, and individual financial strategies will play a pivotal role in shaping the real estate landscape in the years to come.
Simultaneously, the residential real estate market has faced challenges, but amidst the fluctuations, homeownership remains a beacon of financial gain. The average homeowner has accrued approximately $20,000 in home equity over the past year, as revealed by a CoreLogic report on the third quarter of 2023. The collective equity value of mortgaged homes surged by an impressive $1.1 trillion year-over-year, marking a substantial 7% increase.
Geographic location plays a pivotal role in influencing the trajectory of a home's value. Hawaii homeowners experienced a remarkable $64,000 average surge in home equity over the past year, with 17 states witnessing increases of $20,000 or more. However, the equity landscape is not uniform across the nation, as Texas, New York, and Utah observed a decrease in average home equity year-over-year.
Home equity, defined as the value of an asset minus the outstanding debt, serves not only as a point of pride for homeowners but also as a valuable financial resource, particularly through avenues like home equity loans. The substantial increase in average home equity indicates that homeowners have not only enjoyed the appreciation in home values but have also diligently managed their mortgage payments.
Various factors contribute to the augmentation of home equity, such as mortgage repayments, larger initial down payments, and strategic refinancing to shorten the loan term. Market trends also play a pivotal role in influencing equity, as evidenced by surging home values across the U.S. throughout 2023, propelled by high mortgage rates and constrained inventory.
Forecasts from real estate giant Zillow in August hinted at a continued upward trajectory, predicting a 6.5% rise in home values by July 2024. In this dynamic environment, the interplay of market conditions, individual financial strategies, and the Federal Reserve's policies is shaping the future of the real estate landscape. Homebuyers and homeowners alike navigate these fluctuations with cautious optimism, strategically aligning themselves with a potentially evolving market.
Ryan Oda (R), MAT