Real Estate New USA | Imagine Real Estate

Real Estate News in Brief

Normally, we discuss the news in chronological order. But the Fed’s commentary on Wednesday, and the ecstatic market reaction, was too important to not discuss first. The early Christmas presents keep coming for the real estate market. And this was a big one.

Rate cuts coming right on the dot
The Federal Reserve kept its short-term policy rate steady for the 3rd-straight meeting. Nobody really expected a rate hike (or a rate cut), so no surprises there. The official press release didn’t say anything new.

What WAS a surprise was the Fed’s “dot plot” (where Fed members forecast where they think policy rates will be over the next 2 years). 15 of the 19 members expect rate cuts of between 50 and 100 basis points (0.5%-1.0%) over the course of 2024. The median forecast was for 75 bps! Higher for (not much) longer! [Federal Reserve]

The stock and bond market rejoiced. The Dow and the S&P 500 rose to record levels. The yield on the 10-year US treasury bond dropped 30 basis points to 3.93% (not long ago it was threatening to move above 5%). The prices of mortgage backed securities ripped higher. [MBS Highway]

30-year mortgage rates in the 6s! Even before Wednesday’s big moves, average 30-year mortgage rates had already moved down to 6.82%. By midday Thursday, the average 30-year mortgage rate reported by Mortgage News Daily was 6.62% — and this will probably go even lower tomorrow. Mortgage rates have decreased by nearly 1.5% in just two months! [Mortgage News Daily]

Inflation keeps easing
The day before the Fed decision, the November CPI (Consumer Price Index = inflation for me and you) came out. The headline CPI was up just 0.1% month-over-month in November, after being flat in September. On a year-over-year basis, headline CPI eased from 3.2% → 3.1%. [BLS]

And on the day of the Fed decision, we got the November PPI (Producer Price Index = inflation for businesses), which was up just 0.9% year-over-year in November, down from +1.2% year-over-year in October. [BLS]

New NAR Forecasts

The National Association of Realtors’ economics team has adjusted their forecasts for 2024. Here’s what they’re looking for now:

Existing home sales of 4.71 million, up 13.5% year-over-year
Median home prices to rise 0.9% year-over-year (most cities up, some cities down)
30-year mortgage rates to average 6.3% over the course of the year
1.48 million housing starts in 2024, 1.04 million of which will be single-family homes

When it comes to transaction volumes, this is one of the most bullish forecasts out there. (Fannie Mae and Realtor.com forecast flattish existing home sales.) So is the NAR just being an industry cheerleader?

I don’t think so. The NAR also has one of the lowest forecasts for mortgage rates. Makes sense, right? The bigger the bet you make on falling mortgage rates, the higher your forecast for existing home sales should be. And given what mortgage rates have done in the last two months, you can expect other forecasters to play catch-up.

MBS Highway Housing Survey for December

Buyer activity recovered somewhat in December, as the recent 1% fall in mortgage rates coaxed some buyers back from the sidelines. Home prices continued to hold up better than transaction volumes. But with lower rates, slightly improved inventory, and spring around the corner, activity levels may have already bottomed.

The MBS Highway National Housing Index recovered slightly, rising to 34 in December 2023, from 31 in November 2023. In December 2022, the index was at 14.
The overall improvement was driven by a 7 point rebound in the Buyer Activity sub-index, which rose from 20 in November 2023 to 27 in December 2023. Clearly, the one percentage point drop in average 30-year mortgage rates during the last 6 weeks brought some buyers back to the market, in spite of limited inventory and seasonal factors. A year ago, the Buyer Activity sub-index was at 15.
Competition levels have eased in recent months, but the low inventory of homes available for sale in most markets has limited the decline in the National Home Price Direction sub-index, which remained at 41 in December 2023. In December 2022, when home prices were falling month-over-month in most larger cities, the sub-index was at 12.
All but one of the regional indexes saw a month-over-month improvement in its Buyer Activity Index, with large jumps for the Northeast (30 → 50) and the West (21 → 36) regions. Respondents noted the recent drop in mortgage rates as the driver, with “well-priced” homes still selling very quickly.

Mortgage Market

The early Christmas presents keep arriving, and this week we got a big one. The Fed’s “dot plot” forecasts made it very clear that the majority of Fed members expect policy rates to be much lower by the end of 2024. In other words, they think that inflation has come down far enough (and/or the risks to the economy are high enough) to start cutting rates soon.

Throughout 2023, Chairman Powell has repeatedly used his press conference to pour water on any rate cut excitement. But no hawkish talk this time. Instead, he explicitly said that waiting to cut rates until inflation fell to the Fed’s 2% target (for core PCE) would be a mistake.

This ignited an “everything” rally: stocks, bonds, currencies etc. Higher mortgage bond prices => lower mortgage bond yields => lower mortgage rates. When the dust settled on Thursday, average 30-year mortgage rates had dropped to 6.62%. That’s down almost 1.5% in just two months!