Rates made a historical dive over the last 2 days, dropping 60 basis points in just 2 days. Rates in mid-October hit a 20 year high of 8% but sit in the mid-6% range for 30 year fixed mortgages. Why did this happen? Mortgage Rates are closely tied to the 10 year treasury, and news of the Fed holding the Fed Funds rate and looking to lower the rate in early 2024 sparked the drop in mortgage rates. Mortgage experts expect this to continue and if the Fed does lower the Fed Funds rate we’ll more than likely see even lower interest rates throughout 2024. How’s this going to affect the Real Estate market in 2024? It’s extremely difficult to predict where interest rates will end up but mortgage rates are only one factor of what is going on with the market. Using market sales data and mortgage application data there is potential for a storm of activity brewing for the Real Estate market and lower rates will only add fuel to the fire.

  • Pent-Up Demand - There is pent up demand for two major reasons. Homeowners that want to sell and buy a new home but feel locked in to their low mortgage and can’t afford the move. Secondly, there is a record number of 30-35 year olds (average age of first time home buyers) just sitting on the sideline waiting for interest rates to come down so homes are more affordable. Statista (population by age in the USA)
  • Pending Sales - Pending sales numbers are when homes on the market go under contract with a buyer. The rate of Pending Sales is one of the leading indicators of where the market is heading. Like clockwork, Pending Sales shoot up the 1st week of January every year, even the last 2 years. See the chart below.

Wouldn’t you bet the same thing is going to happen in a few weeks?  If inventory doesn’t go up to support it, we’re in for another low inventory tough market.  Inventory will come up if the homeowners that want to move decide to get off the fence but remember, they need to buy something else too!  

  • Foreclosures and Distressed Sales - There is no indication that distressed sales will increase dramatically, in fact foreclosure rates are extremely low, around .02% in California. There is a lot of press and ‘influencers’ in the media that have been calling for a real estate crash citing foreclosures, credit, airbnb tanking, etc. will cause a crash.  Trust me, don’t believe these guys, they don’t know how to look at data and are only trying to get readership and it’s been happening for years and they’re never right.  

Call me with any questions or concerns! I love talking Real Estate and Investing. Have a blessed Weekend!

 

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