January 2, 2024 – Happy New Year

Economic Commentary

At the beginning of each year, those in the real estate industry want to know what type of year it will be. Even though we can’t predict the future, there are a myriad of forecasts issued which give us a flavor as to what the experts are thinking. Thus, we felt it would be a good idea to paraphrase a few of these forecasts. Then at the end of the year, we can go back and reread them and laugh about how wrong the experts were. Or maybe we will be surprised and find out that the experts were finally right! Here we go:

Borrowing costs are expected to ease further next year, which should entice buyers to return to the market. NAR is projecting that existing-home sales will rise 13.5% and new-home sales—which are up about 5% this year, defying market trends—could increase another 19% by the end of next year.

Single-family home sales likely bottomed out in Q4 2023 and, due to the recent pullback in mortgage rates, are expected to begin a slow but meaningful recovery over the course of the next year, alongside upward-trending mortgage origination activity, according to the December 2023 commentary from the Fannie Mae Economic and Strategic Research (ESR) Group. The ESR Group also continues to forecast a modest downturn in 2024, followed by a return to growth in 2025.

The Mortgage Bankers Association (MBA) has indicated that total mortgage origination volume is expected to increase to $1.95 trillion in 2024 from the $1.64 trillion expected in 2023. Purchase originations are forecast to increase 11 percent to $1.47 trillion next year. By loan count, total mortgage origination volume is also expected to increase by 19 percent, to 5.2 million loans in 2024 from 4.4 million loans expected in 2023.

In summary, the major industry organizations are expecting things to get better—lower mortgage rates and increased real estate sales – but not greatly so. Let’s hope they are right about the direction, but wrong about the size of the increase so that we can have a larger rebound. 

Weekly Interest Rate Overview

The Markets. In a quiet week for the markets, mortgage rates continued to ease going into the new year.  For the week ending December 28, 30-year fixed rates fell to 6.61% from 6.67% the week before. In addition, 15-year loans decreased to 5.93%. A year ago, 30-year fixed rates averaged 6.42%, less than 0.25% lower than today. Attributed to Sam Khater, Chief Economist, Freddie Mac, “The rapid descent of mortgage rates over the last two months stabilized a bit this week, but rates continue to trend down. Heading into the new year, the economy remains on firm ground with solid growth, a tight labor market, decelerating inflation, and a nascent rebound in the housing market.”  Note: Rates indicated do not include fees and points and are provided for evidence of trends only. They should not be used for comparison purposes.

Real Estate News

A panel of housing experts expects annual national home price growth of 2.4% in 2024 and 2.7% in 2025, according to the Q4 2023 Fannie Mae Home Price Expectations Survey (HPES), produced in partnership with Pulsenomics, LLC. The HPES polls over 100 experts across the housing and mortgage industry and academia for forecasts of national home price percentage changes in each of the coming five calendar years, as measured by the Fannie Mae Home Price Index (FNM-HPI). On average, the panel anticipates home price growth to clock in at 5.9% in 2023, to be followed by slower growth in 2024 and 2025 of 2.4 percent and 2.7 percent, respectively. With mortgage rates having experienced significant volatility of late, this quarter’s HPES also asked panelists about their long-run interest rate expectations, as well as their opinions on potential drivers of mortgage rates in the future. The average respondent expects the 30-year fixed rate mortgage rate to eventually settle to an average of approximately 5.7%. “The survey panelists expect home price growth to decelerate in the coming years, following 2023 price growth that proved more resilient than many anticipated,” said Doug Duncan, Fannie Mae Senior Vice President and Chief Economist. “Some, including us, had expected the rapid and significant rise in mortgage rates in 2023 to have dampened purchase demand further than it has, putting more downward pressure on home prices this past year than what appears to have occurred. Looking beyond the recent volatility in mortgage rates, panelists expect future rates to decline meaningfully from the recent highs of 8 percent. This would obviously provide improved affordability for potential homebuyers, although anyone expecting the return of the extremely low rate environment from 2020 to 2022 will likely be disappointed. The panelists also revealed that they anticipate other factors will impact long-term interest rates, including demographic trends, expanding fiscal deficits, the evolution of artificial intelligence, and the green energy transition.” Panel-wide, the average expected home price growth rate for 2023 jumped to 5.9%, which is a significant increase from the 3.3% level recorded in the previous survey conducted by Pulsenomics,” said Terry Loebs, founder of Pulsenomics. “However, a large majority of the surveyed experts do not foresee this momentum carrying over into 2024—an encouraging consensus for aspiring homebuyers as we approach the new year.” Source: Fannie Mae

There’s a larger share of homes in America without mortgages now compared to any time since 2005, according to the latest census data. This means some people aren’t worrying about high mortgage rates. Many free-and-clear homeowners are baby boomers who refinanced their mortgages when rates were lower, Bloomberg reports. That’s the case for Thom Schubbe, a technology consultant in Minnesota. Savings from multiple refinances allowed him and his wife to chisel down their mortgage debt and then buy a lake house. That property is almost paid off too. “If you stick with it, you’ll get a low rate,” he tells Axios. The share of mortgage-free U.S. homes has jumped from 34.3% to 39.3% in the past decade, per the census data. There can be a psychological perk to paying off a loan early, but according to some personal finance experts, it could be smarter to invest that money instead. “If people derive some intrinsic happiness out of paying off their mortgage because it reduces their stress, then that has value,” Michael Roberts, a Wharton School finance professor, tells Bloomberg. Source: Axios

ATTOM found the rate of house flipping–while still historically high–has fallen to the lowest point in two years. Per ATTOM’s third-quarter U.S. Home Flipping Report, 72,543 single-family homes and condos were flipped in the period. That’s 7.2% of all home sales nationwide, which is down from 7.9% of all sales in the second quarter, and from 7.7% in the same time last year. The rate dropped for the second straight quarter. However, for those flipping houses, investor returns increased for the third consecutive quarter. “The comeback for the home-flipping industry is looking more like a real trend than a temporary break in what had been a pretty bleak couple of years,” said Rob Barber, CEO for ATTOM. “For sure, investment returns still aren’t anywhere close to where they were a couple of years ago. The latest nationwide profit margin also remains barely within the spread that covers the usual holding costs on flips, with wide variations around the country. Nevertheless, home flippers continue to head back in the right direction.” The typical third-quarter profit margin–based on the difference between the median purchase and median resale price–was 29.8%. While that’s below 2021’s peaks, it’s up from 29% in the second quarter and up from 22.4% in Q4 2022. The typical resale price on flipped homes was $305,000, a 1.5% decline from the second quarter. But that was offset by the 2.1% dip in median prices that many home flippers saw when they purchased the properties. The average time it took from purchase to resale on flips was 161 days in the quarter, compared with 178 in the second quarter, and 165 days year-over-year. Source: ATTOM