2024: Ball Drop, Rate Drop

Interest rates will drop so fast in 2024 that they'll give New Year's resolutions a run for their money! That’s the hope anyway, according to many leading policymakers and economists (and Reddit!) 🤓🤓.

Federal Reserve Chairman Jerome “Turbo Lever” Powell announced this week that next year could see a trio of rate reductions by the Fed. This was following a dizzying increase in rates since 2022.

Like a meticulous chess player, the Fed kept the interest rates steady at 5.25% to 5.5% last week and hinted at cutting rates down to 4.6% by the end of 2024. The rationale? Inflation seems to be cooling off, and the economy is showing signs of slowing down under the current tight monetary policy.

Cocky or Confident? Needless to say, investors were celebrating the New Year early on Wednesday 🍾. The majority of Fed officials are anticipating three reductions, each by a quarter percentage point. Powell noted a slight relaxation in inflation rates but cautioned against premature celebration, stating, "No one is declaring victory. That would be premature.”

Despite this, market responses suggest expectations of even deeper cuts than initially projected. Some smart folks believe the Fed will cut even more.

The markets predict a 150 basis point drop in 2024 as of December 14th.

European Central Bank (ECB) Moves: Meanwhile, across the pond, the ECB faces a conundrum. With inflation weakening and the economy looking shaky, market traders are betting on rate cuts as early as March 2024, dropping to 2.5% by year's end. ECB's situation is like walking a tightrope between cutting too soon or being too restrictive.

Mortgage Rates Outlook: In the world of mortgages, the forecast is looking less grim. Economists are eyeing a dip in mortgage rates, potentially landing between 5.7% to 6.8% next year. What's driving this? The Fed's rate cut expectations! This potential decrease in rates could grease the wheels of the housing market but don't expect a total affordability utopia just yet.

Factors Influencing Rate Cuts: What will sway the Fed's decision? Three big factors are in play: the job market's pulse, the plight of community banks, and market rent trends. These elements could be key in steering the direction of inflation and, consequently, interest rate decisions.

Predictions and Expectations: As we peek into 2024, Danielle Hale from Realtor.com sees mortgage rates hovering around 6.5%, while Fannie Mae's experts predict a dip to about 5.7%. The Mortgage Bankers Association (MBA) is a bit more conservative, foreseeing rates starting at 7% and gradually dropping to around 6.1% by year's end. Redfin also chips in, expecting rates to start at 7% in Q1 and slide down to 6.6% by the end of 202​​4.

Impact on the Housing Market: With rates expected to simmer down, we could see a bit of pep in the housing market's step. The MBA is projecting a total origination volume of $2 trillion in 2024. But remember, lower mortgage rates have also kept homeowners glued to their current properties, keeping the housing inventory tight and prices lofty.

It’s Not all Champagne and Rainbows. Rapid increases and decreases in rates aren’t always a good thing. With housing prices still elevated, a steep drop in rates will flood the market with buyers, pushing prices up even more.

HEADLINES

Canada Goes to War: Wartime housing, that is. Canada's housing crisis has sparked a throwback solution: reviving a wartime housing design catalog. Housing Minister Sean Fraser is launching consultations for standardized, pre-approved home designs, echoing post-WWII 'victory homes.' The plan focuses on cost-effective, labor-efficient, and energy-efficient homes, including modular, prefab, and multiplexes for diverse needs. This strategy, set for rollout by fall 2024, aims to fast-track construction and approvals, potentially leveraging new technologies like 3D printing, while ensuring sustainability and reduced living costs (CTV).

Rent Freefall: Interest rates aren’t the only thing dropping these days. According to new data, the rental market's tide is turning. Redfin's latest report shows US median asking rents dropping by a nifty 2.1% year-over-year in November - the biggest plunge since Feb 2020. Why? A boom in apartment completions and climbing vacancies are forcing landlords to dish out sweeter deals. But don't break out the party hats just yet - the single-family home scene is still tight, and larger rentals might keep their price tags hefty thanks to remote work and family space needs. Homebuyers, eyes on 2024, keep those wallets in check with mortgage rates expected to swing between 6% and 7% (Business Insider).

Redfin Next: The company has revamped its agent-pay program. Now dubbed 'Redfin Next,' it is expanding to San Diego and Orange County, following its successful rollout in San Francisco and LA. Launching on Jan. 1, 2024, this program shifts agents from a base salary plus bonuses to a commission-based structure, aiming to skyrocket their earning potential. Agents can snag up to 75% of the commission on self-sourced deals while getting 40% on leads from Redfin. These 'lead agents' will stay as W-2 employees, enjoying full-time perks like healthcare and 401(k)s (REN).

But where Redfin is trying to retain its members, NAR is having difficulties…

BY THE NUMBERS

6000: Is the drop in membership in November at the National Association of Realtors (NAR). For the first time in over a decade, their ranks are thinning, with nearly 6,000 members jumping ship last month. Looks like the industry's rollercoaster year is leaving its mark on the nation's largest trade organization. Both the slowing market and ongoing commission lawsuits seem to be hurting membership (REN).

Half: Zillow Group's survey reveals that while 50% of homeowners and 45% of renters correctly peg the average mortgage rate above 6%, the other half are still in the dark, underestimating the rate, which hasn't dipped below 6% since September 2022. This gap in rate awareness has real implications: those in the know are better positioned to make savvy financial decisions, like navigating lending options and timing refinances for savings. Interestingly, rate-savvy homeowners also show more optimism about the housing market and may strategically delay selling their homes (Zillow).

Chart:

According to Redfin, 2023 marked the least affordable year for U.S. homebuyers, with median incomes spending 41% on housing, up from 2022's 39%. Tough markets like Anaheim and San Francisco required spending over 80% of income. However, 2024 looks promising, with potential dips in home prices and mortgage rates. Despite overall trends, Austin showed improved affordability. The year was characterized by high mortgage rates, slow wage growth, and a mismatch in housing supply and demand, leading to a challenging market landscape

LIGHTER SIDE

Santa’s Home in 3D: Zillow's festive spirit is on full display with a 3D tour of Santa's luxurious North Pole cabin, now a yearly holiday tradition. Thanks to AI-generated floor plans, families can virtually wander through Santa's abode, including the mail room and gift-wrapping suite. It's an immersive experience, letting you almost smell the gingerbread and hear Christmas carols. While Santa's not selling (phew!), the tour includes a peek at elf-sized doors, a naughty or nice detector, and a hot cocoa bar. Since its 2016 listing debut, Santa's home has attracted 3 million views and is now valued at $1.18 million, a cozy 2% increase from last Christmas (Inman).