We’re thrilled to be back with another Real Estate post today. If you’ve missed any of our previous posts where we discuss the buying process, what to look for, how to find an agent, and so much more, be sure to check them out here as you start your real-estate journey
If you’re in the market now or will be in the future, we want to provide you with valuable information for navigating the real estate market so we can help you make that next purchase.
pssssttttt… see this tour here!
But first, let’s keep all the legal guys and gals happy. The purpose of this series is to explore the housing market and what I believe we can expect from it. Please understand we’re not offering personal financial advice. We highly encourage you to talk to your local Realtor and licensed financial adviser. {Side note: If you need help finding a good local Realtor, let us know no matter where you live. We have helped several people with this not-so-little task.}
So, with that out of the way, last January, I {Jamin} gave three predictions, a trend, and a warning for 2024. If you didn’t read that post, start here.
If there’s anything we want to be, it’s transparent. We do our best to give you valuable information, and more often than not, we are on the right track. However, sometimes, our predictions are wrong, and the receipts are there.
It‘s time to check on those predictions and adjust our expectations.
1. My First Prediction for 2024: We’ll see a minimum of a 125 basis point rate cut to a max of 200 basis point rate cut.
While this is still entirely possible, it is also, in my view, highly unlikely. There are three FED meetings for the remainder of the year. As most people believed the Fed held the rate steady yesterday, signaling that the first possible cut would come in September.
If they cut 25 basis points in September and then an additional 50 basis points in November and December, the prediction would hold true. However, it appears more likely we will see a 25 basis point cut in September and possibly November and then 25 or 50 in December. In the best-case scenario, we see a 100 basis point cut, and in the worst case, a 50 basis point cut.
Why was I wrong?
The main culprit was that the labor market didn’t soften as we anticipated it would, which would have allowed the Fed to begin the rate cuts. Inflation also remained sticky. So, with a strong labor market and sticky inflation, the FED held the rate. However, inflation has shown signs of cooling, and the labor market has shown signs of weakening. My belief is that with another month of data to support this, the FED will begin looser monetary policy.
2. My Second Prediction for 2024: Existing home sales will stay low.
I predicted that current homeowners would not opt to sell their existing homes unless they had a life event requiring them to, which would, in turn, create upward pressure on home prices. According to a recent survey, I was spot on; 47 percent of current homeowners say mortgage rates need to be below 5 percent for them to feel comfortable buying a home this year. While 38 percent say, rates would need to be below 4 percent.
This is backed up by data showing that existing home sales continue to stay well below the 10-year average, as shown in the chart below.
What does this mean moving forward? I think this trend will continue for at least another 2+ years, which will help maintain upward pressure on home prices.
3 My Third Prediction for 2024: There will NOT be a housing market crash in 2024.
This might have been the most sure-fire prediction I made, one I would have bet the farm on.
We started the year with a median home price of $430,000, and as of May 1, it was $417,000. Now, while that was a dip of about $13,000, it also does not contain data for the last three months, which historically proves to be a jump in pricing. Even if we stay at these levels, no one would call a 3% pullback a “crash.”
And once the FED begins dropping rates, what do you think the market will do?
Also, remember that NAR settlement I wrote about here?
To sum it up, REALTOR organizations were sued because plaintiffs and the government accused them of, in the simplest of terms, “shady practices.” That really doesn’t do it justice, but this is not the post to explain all the ins and outs. Basically, they cried, saying it was unfair for listing services to publicize and offer compensation to the buyer broker from the seller. Thinking that should be handled by the buyer. Their reasoning, and even that of our current president, was that it drove home prices higher.
They thought that if the seller didn’t feel like they had to offer a 3% buyer agent compensation, then prices would fall. Clearly, they’ve never heard of capitalism or understand basic economics. Homes are not appraised on the net proceeds of a home but on what the last homes around them sold for. So, if the average home is sold for $450,000, the new home can be listed at that same price, too. However, now they don’t have to pay the 3% buyer agent compensation, so their net profit went up by $13,500. Let me ask: What do you think they’ll do with that new net profit? Give it to the buyer out of the goodness of their heart, or say thank you very much and head to Jamaica?
All that to say, with the NAR settlement and now buyers being on the hook for their agent’s compensation, that alone will drive home prices higher.
• Warning for 2024: Be Ready.
I also issued a warning, which I’ll include below:
“This leads me to my warning for 2024. If you’re interested in buying over the next year, be ready and take action sooner rather than later. As I said last time, we are not near the peak of this housing market cycle, and when it takes off again, it is going to leave a lot of people in the dust. Prices will rise over the next 24-30 months before we see a crash back to just above the current market value. You don’t want to be caught buying at the top of the market and worrying about going red on your investment.”
I still firmly believe this to be true. If you have not read my post on the housing market cycle, stop what you’re doing and read it now. You can find it here.
You’ve been lucky to get a pause in the market for this long, but it won’t last, and you’ll be chasing prices very soon. If you wait too long to buy, the risk level of watching your equity disappear will rise exponentially. Again, read my post here to understand this more.
Politics and the economy
It is an election year, and honestly, we have no place for heated political discussions here. However, we would be remiss if we did not acknowledge how this can impact the home industry. Also, this is not about social politics and what is best for all. This is about what the housing market will do.
I firmly believe that no matter who is elected, home values will only trend higher for the rest of the year and next year; then, at some point, we are due a correction. Probably back down to a level slightly higher than where we sit now.
Less interference, unlike in the NAR case, is better for keeping home values affordable. New home buyers now must not only come up with their down payment but also compensation for their agent, which, by the way, can’t be financed.
We hope this little review was a helpful refresher of what’s going on. As always, let us know if you have any questions, and be sure to reach out if you need any help!
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Real Estate is an interesting beast, and having an agent who can pull the curtains back and help navigate what will most likely be the biggest purchase of your life, is essential. As they say, you don’t know what you don’t know, and that’s where a good realtor comes in. {If you need help in hiring a Realtor, check out our post here.}
If you’re in the Middle Tennessee area, I’d love to meet you and help you find the perfect home, you can sign up here so we can start the process. And even if you aren’t in Middle Tennessee, contact us here and we will take care of you no matter where you live. There is no reason to go it alone.
Have an inspired day!
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