The new year will find the housing industry in the middle of a couple of opposite trends.
Depending on which trend prevails, the market could be in for a boom or a bust.
On the one side is the decline in mortgage rates. The 30-year mortgage rate, which reached 8% a couple of months ago, dropped to 6.64% last week.
That's thanks to the easing of inflation and the Fed's signaling of a policy pivot, which has driven long-term interest rates lower across the board. For instance, the 30-year Treasury bond yield, a benchmark for 30-year mortgages, dropped from 5.10% in mid-October to 4% last week.
Lower interest rates ease the cost of financing home purchases. As a result, it could help revitalize the market for existing homes, as homeowners will be looking for opportunities to move to bigger or smaller homes, depending on their family needs.
Eventually, demand could outstrip supply, setting up another housing boom.
On the other hand, the prospect of slowing the U.S. economy could push the unemployment rate higher and disqualify buyers from getting a mortgage.
And there is the problem of low affordability. Home prices have been rising nonstop, even during the Covid-19 recession. They have reached levels that make it even harder for prospective home buyers to come up with the down payment and obtain a mortgage.
Higher unemployment and lack of affordability could set the industry up for another bust.
Still, most industry experts contacted by International Business Times believe that the first trend will prevail, with another boom in the cards for 2024.
Dave Forehand from Team Forehand Realty in Green Bay, WI, is one of them. He expects favorable demographics — the generation of millennials entering the prime of their home-buying years — and the prospect of lower interest rates to lead to another banner year for the housing industry.
"The potential stabilization of interest rates is the major contributor to my positive outlook," Forehand elaborated. "We closely monitor uncertainty, such as inflation, the upcoming presidential election and policy changes. The Green Bay housing market has strong employment rates, population growth and a thriving local economy, suggesting 2024 will experience a booming housing market, making it an excellent time for buyers and sellers."
Michael Ashley Schulman, CFA, partner and chief investment officer at Running Point Capital Advisors, added several factors to the boom case for the housing industry, like lack of home inventories, slow construction of new homes, institutional demand and higher price expectations.
"Maybe potential buyers will balk at the higher monthly dollar payments that come with high-interest rates, maybe fresh listings will hit the market, and probably annual price increases will slow," Schulman told IBT. "But barring a recession, there is still much to support home prices."
Omer Reiner, licensed realtor and president of FL Cash Home Buyers, LLC, is optimistic about the state of the housing industry next year, too. "Especially in cities and states that are already hot commodities as far as home sales, such as Florida, Texas and California," he said. "It will be interesting to see how that delicate dance of setting the right interest rates and pushing more inventory into the pipeline plays out."
But there are industry skeptics, too. For instance, Noah Rosenblatt, co-founder of UrbanDigs, doesn't subscribe to either a boom or a bust scenario. He pointed to an unusual current market environment where most existing home sellers are locked into low mortgage rates amid a typical transaction, tight supply and a disinflationary world.
"It is costly to move right now," Rosenblatt explained. "This is feeding the cycle as options remain limited. Those with timeliness to sell are likely the isolated ones that will experience potential bust-like bids, but that in and of itself will be isolated in local housing markets where sell-side competition is higher than normal and local demand lower than normal."
Broker Tate Kelly of Coldwell Banker Warburg doesn't see any significant price change in home prices in either direction. "I believe the real estate scene is and will be going through a rebalancing phase," he told IBT. "Not many homes are up for grabs at the end of 2023, and sellers and buyers are hesitant mainly due to the high-interest rates creating a situation of low supply and low demand."
Christopher M. Naghibi, Esq. fears housing predictions about booms and busts, especially busts. "If, for example, the Fed were to cut rates, we could have a serious and long-lasting problem," he said. "Home affordability is at an all-time low. If we do not get a correction, then we are essentially going to wipe out a large portion of the middle class and move toward a wealth class and a working-class system."
Naghibi pointed out that most Americans build wealth from the appreciation equity of their homes over the long term. "If they cannot afford to buy and rates now and lower interest rates drive higher home values higher, they will deprive entire generations of the opportunity to build the same wealth," he added.
