Timing is everything when it comes to the federal funds rate. Economists are increasingly confident that the first rate cut since 2020 could happen as flowers are blooming in the late spring and early summer. This aligns with what Mortgage Bankers Association (MBA) Chief Economist Michael Fratantoni suggested during October Research’s 2024 Economic Forecast webinar in January.
Federal Reserve Chair Jerome Powell revealed he believes the financial markets are “in the right place” for a cut in the coming months while testifying before the Senate Banking Committee on March 7.
“We are waiting to become more confident that inflation is moving sustainably down to 2 percent,” Powell said. “When we do get that confidence, and we’re not far from it, it will be appropriate to begin to dial back the level of restriction so that we don’t drive the economy into recession.”
Survey Reveals Americans Holding on to Dream of Homeownership Despite High Lending Rates
Despite challenging times in the housing market, the American Dream of owning a home is still alive, according to a recent Realtor.com survey. A majority of Americans think the dream is still achievable, though for many prospective buyers, it hinges on an interest rate drop to less than 6%.
Though the sentiment is generally shared across generations, for Millennials and Gen Z, there may be a little more flexibility, with nearly half (47%) of Millennials and 37% of Gen Z respondents stating they'd still buy a home if rates went above 8%. Although rates are not anticipated to go below 6.5% according to Realtor.com's 2024 Housing Forecast, research shows that every half percent drop in the mortgage rate reduces the monthly payment for the typical home for sale by $120, a savings of $1,400 per year and $43,000 over the life of a 30-year mortgage.
Home Builders CEO Says Nation Heading Toward ‘Housing Renaissance’
National Association of Home Builders CEO Jim Tobin in a recent interview expects 2024 will be a turning point for the nation’s housing market. “We’re heading toward a housing renaissance," National Association of Home Builders CEO Jim Tobin told Yahoo Finance Live.
Tobin's comments came after this week mortgage rates posted their biggest drop since May last year. The average rate for a 30-year loan slid to 6.60% from a peak of nearly 8% in October. Sales of previously owned homes retreated by 1% in December from the month before to an annualized rate of 3.78 million, the National Association of Realtors said Friday. December’s home sales slumped by 6% compared to last year. “The December figure is likely the low point in this cycle, and expect an uptick in the coming months,” NAR Chief Economist Lawrence Yun said. He noted that lockbox activity was up 5% in December compared to last year, which signaled more buyer demand.
“2024 is shaping up to be that pivot year where we leave the doldrums of the post-COVID slowdown, and we really pivot into the next five or six years in the housing market where we're going to see some great growth. We're going to see homebuilders meet that pent-up demand for single-family and multifamily housing,” NAHB’s Tobin added.
NAR Expects US Will Avoid Recession; Home Sales to Rise 13.5% in 2024
NAR Chief Economist Lawrence Yun forecasts that 4.71 million existing homes will be sold, the housing market is expected to grow, and Austin, TX will be the top real estate market to watch in 2024 and beyond. Yun unveiled the association's forecast during NAR's fifth annual year-end Real Estate Forecast Summit: The Year Ahead held earlier this week.
Yun predicts home sales will begin to rise next year—by 13.5% compared to 2023 and the median home price will reach $389,500—an increase of 0.9% from this year. Yun expects rent prices to calm down further in 2024, which will hold down the consumer price index. He predicts foreclosure rates will stay at historically low levels in 2024, comprising less than 1% of all mortgages.
Yun forecasts that U.S. GDP will grow by 1.5%, avoiding a recession, with net new job additions slowing to 1.7 million in 2024, compared to 2.7 million in 2023 and 4.8 million in 2022. After eclipsing 8% in late 2023, he expects the 30-year fixed mortgage rate to average 6.3% and that the Fed will cut rates four times—calming inflationary conditions—in response to slower economic activity
Strong Jobs Report Muddles Economic Picture and Makes Interest Rate Hike by Fed Possible
Job growth in September was much stronger than analysts had predicted, indicating that the U.S. economy continues to grow despite higher interest rates, labor unrest and dysfunction in the nation’s capital.
CNBC reports that nonfarm payrolls increased by 336,000 for the month, better than the Dow Jones consensus estimate for 170,000, the Labor Department announced earlier today. The unemployment rate was 3.8%, compared to the forecast for 3.7%. NAR Chief Economist Lawrence Yun released the following statement in response to the jobs report. “The job market continues to crank out jobs in high figures: 336,000 in September and over 4 million more compared to pre-COVID-19 March 2020. It does not mean all is well. The jobs data, however, is considered a lagging indicator as the firms will only make a job cuts decision after having cut costs in other areas,” he said.
Yun continued, “Commercial real estate, in particular, is flashing warning signs. Net leasing on retail and warehouse spaces is slowing. The office sector is continuing to bleed with rising vacancy rates. Community banks, many with exposures to commercial real estate, are watching their balance sheets carefully. The fast-rising interest rates are breaking several sectors of the economy. The remaining sectors will also likely crack if the rate hikes continue. Given that the inflation rate is already cooling, the Fed needs to stop raising rates and strongly consider cutting interest rates next year. That would be the soft landing without the net job cuts to the economy.
Report Shows the Cost of Homeownership and Rent is Out of Reach for Many in the Hudson Valley
Hudson Valley Pattern for Progress has released a report that claims the path to homeownership is shut down in the region, as median home prices exceed mortgage qualifications by more than $100,000 in all nine counties the organization serves.
The not-for-profit blames the affordability crisis for housing in the region on stagnant wages, increasing rents and skyrocketing home prices that have stretched household budgets to their limits. Among the report’s findings include that single adults working 40 hours per week on average renter wages cannot afford a one-bedroom apartment in any of the nine counties. Renters would need to earn anywhere from $1 to $26 more per hour to afford rent in their respective counties. Renters in every county are considered “cost burdened.” Also, fair-market rents would need to decline anywhere from $33 to $1,343 per month to make them affordable for a person earning average renter wages across the region.
Mortgage applications decreased 3.1% from one week earlier, according to data from the Mortgage Bankers Association’s Weekly Mortgage Applications Survey for the week ended Aug. 4, 2023.
On an unadjusted basis, the index decreased 4.0% compared with the previous week. The Refinance Index decreased 4.0% from the previous week and was 37% lower than the same week one year ago. The seasonally adjusted Purchase Index decreased 3.0% from one week earlier. The unadjusted Purchase Index decreased 3.0% compared with the previous week and was 27% lower than the same week one year ago.
Federal Reserve Hits Pause on Rate Hikes for Now
The Federal Reserve announced this afternoon that it decided to pause its policy of rate hikes to lower inflation. After hiking rates 10 times since last year, the Federal Open Market Committee decided to maintain the target range for the federal funds rate at 5% to 5.25%.
CNBC reports that while the Fed held off a rate hike at its June meetings, the Federal Open Market Committee decision came with a projection that another two-quarter percentage point moves are on the way before the end of the year. The Fed next meets July 25-26.