Santa Powell came early this year and brought us the gift we have all been waiting for in the real estate industry.
He finally took his foot off our throats, pretty much confirmed NO more hikes, and then gave us a 3 FEDs rate cut for 2024.
What does this really mean to the real estate market? Rates? Buyers/sellers?
Now that we know the Feds are done hiking, lenders, buyers, sellers, builders, investors (and the list go on) can now start to plan for lower rates in 2024, more affordability, more transactions, and maybe the real estate market will come out of the recession of all time low home sales. This will start to change the mindset of so many buyers and sellers as rates continue to fall over 2024 and bring lots of buyers off the sidelines and hopefully lots of new listings.
The prediction is that we will still be short on supply due to the lock-in effect of all those 2’s and 3% rates that homeowners are sitting on and to add to that the price they paid for their house is much lower than today’s market levels. Lower rates just take lots of stress out of the market for buyers and sellers to make moves. It will also open lots of refinance opportunities for those who need to get out of higher rates or consolidate higher-rate debts.
Most sellers are buyers and lower rates will motivate sellers to list their properties that are trade-up buyers. If you take a $500K purchase with 20% down at 8% compared to 6.375% today, that is a difference of $440 PI a month, that is HUGE for any buyer and it starts to make much more sense for many to enter the market. So many buyers could not even put in offers at 8% rates because they could not qualify for the house they wanted.
We are going to see the start of refinances; cash out, rate/term, investors getting out of private money, and borrowers refinances out of ARMs that are starting to adjust. The commercial real estate market will start to come alive, with lots more purchases and lots of refinances, are ARMs are adjusting as well and coming up for a refinance opportunity.
Rates, rates, rates…
Let’s be honest, everyone wants 2% and 3% rates but we all know that is most likely not going to happen unless we have a recession in 2024 or 2025.
Rates are in the 5’s and 6’s at the moment and I think we could see some rates in the high 4’s and other rates in the 5’s. The spread between the 30-year fixed and the 10-year treasury that historically sits at 1.8% is at 3% today. That should organically come down resulting in improved mortgage rates. The FED said 3 rate cuts, they did not say how big the cuts were going to be.
Is it going to be 0.25? 0.5? 1%? Most are thinking the FED will cut 1.50 to 2% next year and it could be more if the economy enters a recession.
If you are looking to buy or refinance, 2024 could be your year. Lenders will probably be much more aggressive on rates in Jan 2024 than Dec of 2023 going into the holidays. Don’t expect rates to just shoot straight down, we will have volatility so if the rate makes sense lock it in and don’t play the rate game. We had a big move to the downside in rates over the past month. We could be sitting at certain rate levels for a while and then move down. I am not a huge fan of these big rate moves, it is really not good for the market and also it is hard to balance this as a lender.
2024 will be much more fruitful for those in the real estate market as we really took the biggest hit of any market with the FED’s aggressive rate hikes.
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