Every year I make predictions on what I think the year will hold for residential real estate. December is report card time – let’s look at my predictions for 2024 and grade my work together. Boy, is this a doozy of a report card.
I said we’d have an economic slowdown. Grade F
“Recession: Just like last year, the specter of a recession is a big hinge point. In 2023, we managed to scoot along in “soft landing” mode and avoided it. That being said, I still think it is on the table for 2024. Maybe not a full-blown recession – two quarters of negative GDP is the normal measure. However, I do believe we will have an economic slowdown. And honestly, we need it. I’ll talk more about rates in a second, but usually when the stock market goes down rates also go down and that is really what we need to continue to bring buyers and sellers back into the market. More on the seller part in a few paragraphs too. It all ties together, doesn’t it?”
I couldn’t be more wrong on this one. I’ll be honest, I still don’t fully understand why the economy is so resilient. Some AI excitement, some people saying “YOLO” and spending like crazy, partially that Powell pulled off a soft (or even no) landing. An F for Crazy Uncle Keith on this one.
Interest rates will go down in 2024. Grade B-
“Over the last 24 months, rates went up as fast as they have in history. Papa Powell (better known as Federal Reserve Chairman Jerome Powell) was cranking rates as hard and as fast as he could to try to stem inflation. It worked. Kinda.
Then, he gave us all whiplash.
In a two-week period, Powell went from deliberately stating that he was willing to keep rates “higher for longer” to flirting with lower interest rates. That little flirtation looked like teasing the market with up to six rate cuts in 2024. The stock market loved that news and has been on a heater (off and on) ever since. Knowing all this, I say rates will continue to go down in 2024. I also think we could even go down to sub-6% by the end of the year.”
Ok, I’ll admit, I’m still stinging from my “F” on the economic slowdown so I might be grading myself on a curve but here we go. Rates started the year at 6.62%. Then they got to a two-year low of 6.08% in September (I was right), but at the time of this writing, rates are at 6.78%. So basically flat for the year but we did get close to a sub-6% rate at one point and time.
Sellers locked in. Grade: A
“There was an effect of the Powell Rate Ratcheting that we’ve never seen in my 25 years in real estate. Sellers with equity and a desire to move couldn’t afford it. Why? Because rates had doubled since they purchased their house. While buyers have always come into the market when rates go down, we’ve also got a backlog of pent-up sellers that will come into the market slowly at first, then all of a sudden. Many reports show that 5% interest rates seem to be the tipping point for the full-on seller avalanche (not a technical term). But every rate decrease below 6% will see more and more sellers come into the market plus buyers coming into the market. My intuition is telling me that there will be a pretty hot real estate market as these two factors come together.”
Another historically low transaction count for 2024 (not final as of this writing but will end up a lot like 2023 at just over 4M). The one time we did get a big bump in transaction volume, it followed rates being down for a semi-extended period of time.
4.3M real estate transactions. Grade C-
“Real Estate Values/Units: Real estate values held steady in most markets across the country in 2023. In 2024, I think they will improve and go up – in some areas very quickly. This will be a bounce back market albeit a very rate sensitive one. Rates will matter a lot. Units are the big question. Real estate transactions were sub-4 million in 2023. They haven’t been that low since Gangsters Paradise was the number one song (1995). I’ve seen some forecasts predicting as high as 4.7 million units for 2024, but that is too aggressive for me. I think I’ll come in at 4.3 million. But if rates get down below mid 5’s then I’m changing that prediction closer to 4.5 million.”
We’re going to end up over 4M, but not a lot. So being off by 300,000 transactions might feel like an “F” grade, but since I was working off of a lower rate environment, which we didn’t have for much of an extended period of time, I’ve given myself partial credit for the right approach but the wrong variables in the equation.
Phew, that was brutal. It reminds me of my college grades.
So what did I learn?
- Interest rates are a fickle beast, and this market is VERY interest rate dependent more so than any other real estate market I have looked at. So I learned “don’t guess on interest rates.”
- The lock-in effect is real, and it will be here until we get sub-7 (really 6.5%) rates and then it will be on and popping like champagne in the Roaring ’20s (no, I am not old enough to have lived through it, which is what my 13 year old asked me when I had her read this).
- Overall, I am optimistic about 2025 for residential real estate and will be putting out my predictions for the new year soon. Thanks and I hope you’ve had an amazing 2024 and are as excited about 2025 as I am.