Mortgage rates have been a focal point in real estate news throughout 2023, and with good reason. I touched on the very topic in two of my weekly emails this month. Many sellers and buyers remained on the sidelines throughout the year, observing rates climb steadily each month with the hopeful anticipation of an eventual downturn. The journey has been undeniably tumultuous, making it fitting to conclude the year by assessing our current standing and contemplating what lies ahead in 2024.
To begin, the Fed announced earlier this month that interest rates would remain unchanged for the rest of the year and are anticipated to decrease in the coming year. This news comes as a relief to the housing market, which has been grappling with the impact of rising interest rates aimed at curbing inflation. The average 30-year mortgage has been determinedly decreasing, marking a substantial decline from its recent high of almost 8 percent in October. In fact, it reached an average of 6.67 percent for the week ending December 21, the first time since mid-August that it has fallen below the 7 percent threshold. The Chief Economist of the Mortgage Bankers Association anticipates a focus on rate cuts going forward, with the National Association of Realtors forecasting an average mortgage interest rate of 6.3 percent in 2024.
While the freeze in interest rates and the prospect of cuts align with a decline in inflation growth, achieving the Fed’s goal of a "soft landing" without an accompanying recession is not guaranteed. Real estate experts emphasize that lower rates may not solely translate into increased real estate activity, as they could also indicate a weaker economy and falling property prices. There is skepticism about the extent of additional inventory resulting from a rate reduction in 2024. Jonathan Miller, President and CEO of Miller Samuel Inc., expresses doubts about a substantial increase in inventory, and Bess Freedman, CEO of Brown Harris Stevens, aligning with Miller, maintains a "cautiously optimistic" outlook for 2024 over 2023, recognizing the challenge of limited supply.
Developers servicing senior debt and construction loans may benefit, but the luxury housing market, particularly in New York, where all-cash buyers have been prevalent, may experience a more muted response. Overall, economists remain hopeful, expecting rate cuts to potentially lead to modest growth in new and existing home sales in 2024. Additionally, homeowners with high-interest mortgage loans stand to benefit by refinancing, resulting in increased disposable income.
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Wishing you a safe, healthy, and prosperous 2024!