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According to most experts, if Hollywood made a movie based on the 2024 real estate market , the title would be: 2023: The Sequel.
In 2023, interest rates dominated the landscape as they did the year before – and as they will in 2024. Rates began last year at just over 6% rising to a stunning 8% in October and have settled back down to around 7% in early 2024.
So, what can we expect in 2024? Here are 5 things to look out for in the real estate market as we bask in the glow of a brand-new year and struggle to keep our New Year’s resolutions:
1. A little relief is better than no relief.
Most experts agree mortgage rates will drop in 2024. But don’t expect a return to the 2010s when rates bounced around in the 3s and 4s for a decade. However, they should trend in the right direction, dropping into the low 6s, maybe even the high 5s (which calls for a “high-five”- sorry couldn’t resist). Be patient though, rates never move in a straight line and much of that relief could come in the second half of the year.
2. A little perspective please?
Over the past decade homebuyers have enjoyed unprecedented cheap mortgages with a median rate of under 4%. But let’s widen our lens. When I bought my first home in the late ‘90s I thought I was robbing the bank with my 8.5% mortgage! If you bought a home in the 80s, rates never dipped below 9%, and in 1981 your rate was about 18%! Since Freddie Mac began tracking rates in 1971, the median 30-year fixed rate mortgage has been 7.41%, slightly higher than today’s rate. While some experts refer to the current rate climate as the new normal, perhaps it’s really just the “old normal.” As famed armchair-economist Roger Daltry once said, “meet the new boss … same as the old boss.”
3. Reversing the “mortgage rate lock-in effect” on INVENTORY.
Thanks to the low rates during the pandemic-era, 85% of mortgages held by homeowners today are below 5%, with many in the 3s and even some in the 2s. Since then, rates have more than doubled. Result: mortgage holders are “locked-in” to their dream rate which has kept them from selling their homes and buying another at a rate that still gives most of us the heebie-jeebies. As rates come down, however, more owners may be able to justify selling and paying a slightly higher rate to make that move they’ve been putting off. Moreover, new construction is expected to tick up in 2024. So, expect to see a long-anticipated rise in inventory in 2024. How much the needle moves remains to be seen.
4. Higher inventory means more SALES right?
Kinda, sort of, maybe. In theory, lower interest rates increase affordability, coaxing more buyers off the sidelines into the game. More inventory + more buyers = more sales. Simple math even a lawyer can understand. However, a 5.99% mortgage still prices out a swath of buyers who were loan eligible 24 months ago when rates were in the 3's. Add to that an increase in home prices that outpaced gains in household incomes over the same period. Translation: sales are expected to increase some in 2024 but look for another tough year for first-time homebuyers.
5. Could HOME PRICES crash in 2024?
Typically, home prices plummet for 1 of 2 reasons: 1) a sudden and dramatic increase in supply or 2) the economy tanks. Neither is expected to happen in 2024. Inventory will likely remain historically low this year which will continue the upward pressure on prices. However, expected improvements in both inventory and interest rates (however modest) should flatten the price curve. While experts forecast a decline in home prices for some parts of the country, don’t expect that for the Bay State where prices are expected to increase in 2024 - though less so than in 2022 and 2023.
Bottom line, 2024 will likely remain a seller’s market. However, an expected increase in inventory along with a decrease in mortgage rates will bring more balance to the market, resulting in home prices leveling off some. While these market shifts will be welcome, they won't be seismic.
Strategies for Sellers and Buyers in 2024
If you’re thinking of entering the market, my advice is always the same - in good times and in bad: make a written plan and do your homework. Step 1, talk to your people. If your selling, you’re probably sitting on a pile of cash which could have capital gains tax implications. Consult your accountant, financial planner, or both long before you list your property.
Second, hire a good realtor. For most people, their home is their biggest asset and comprises the vast majority of their net worth. Choosing the right agent may be the most consequential hire you ever make.
If you’re buying, see above advice on picking a good realtor. If you plan to finance your purchase, the first person you should consult is a loan officer, even before an agent. I recommend consulting someone from an established bank or lender with local ties.
Steer clear of internet lenders where the person on the phone (if you even speak with someone) likely doesn’t know the difference between England and New England. Real estate customs, practices, and laws vary by region. Whenever I see a transaction go sideways due to the buyer’s financing, the lender invariably seems to be an internet entity. As it turns out, you can’t get a mortgage simply by pushing a button or clicking a mouse.
Until then, good luck with your own real estate journey. Happy 2024. Contact us any time with your real estate questions or legal needs.