Houses Will Get A Bit More Affordable In 2024, Forecasters Say
If you’re one of the many people who can’t afford to buy a house these days, forecasters have some welcome news: It’s probably going to get better in 2024, although only by a bit.
Where Do Interest Rates Go From Here?
1. Difficult to accurately predict mortgage rates for the next year:Although it's challenging to estimate mortgage rates for the upcoming year, there are indications that they are currently trending downward.
2. Impact of Inflation Retreat:With inflation on the decline, Federal Reserve officials have maintained the federal funds rate, influencing all types of credit, including mortgages. Officials are expected to keep rates unchanged this month and might not raise rates further in this cycle. The central bank is widely expected to cut rates at some point next year.
3. Influence of 10-Year Treasury Yields:Mortgage rates are heavily influenced by yields on 10-year Treasury notes, which tend to move in response to investor concerns about inflation.
4. Predictions for Mortgage Rates:According to Fannie Mae, mortgage rates have already dropped half a percentage point from their recent peak to 7.22% as of last week. Forecasters anticipate further rate declines next year, although there is variation in predictions regarding the extent of the decrease.
5. Uncertainty and Caveats:Forecasts come with a significant caveat, especially since the fate of the housing market is closely tied to mortgage rates. Predicting mortgage rates is an extremely challenging task.
6. Rate Predictions:Fannie Mae predicts a 7.1% average for a 30-year mortgage rate by the fourth quarter of 2024. The National Association of Realtors anticipates a faster decline, reaching the 6% to 7% range by spring.
7. Cautions About Predictions:All these predictions come with a substantial caveat, especially because the fate of the housing market is tied so closely to mortgage rates.
8. Difficulty in Predicting Mortgage Rates:For example, last year at this time, Fannie Mae forecasted mortgage rates to be around 6% by now, off by more than an entire percentage point. This highlights the difficulty of the task rather than a criticism of Fannie Mae's economics team, which recently won a prestigious academic award for forecasting accuracy.
2. Impact of Inflation Retreat:With inflation on the decline, Federal Reserve officials have maintained the federal funds rate, influencing all types of credit, including mortgages. Officials are expected to keep rates unchanged this month and might not raise rates further in this cycle. The central bank is widely expected to cut rates at some point next year.
3. Influence of 10-Year Treasury Yields:Mortgage rates are heavily influenced by yields on 10-year Treasury notes, which tend to move in response to investor concerns about inflation.
4. Predictions for Mortgage Rates:According to Fannie Mae, mortgage rates have already dropped half a percentage point from their recent peak to 7.22% as of last week. Forecasters anticipate further rate declines next year, although there is variation in predictions regarding the extent of the decrease.
5. Uncertainty and Caveats:Forecasts come with a significant caveat, especially since the fate of the housing market is closely tied to mortgage rates. Predicting mortgage rates is an extremely challenging task.
6. Rate Predictions:Fannie Mae predicts a 7.1% average for a 30-year mortgage rate by the fourth quarter of 2024. The National Association of Realtors anticipates a faster decline, reaching the 6% to 7% range by spring.
7. Cautions About Predictions:All these predictions come with a substantial caveat, especially because the fate of the housing market is tied so closely to mortgage rates.
8. Difficulty in Predicting Mortgage Rates:For example, last year at this time, Fannie Mae forecasted mortgage rates to be around 6% by now, off by more than an entire percentage point. This highlights the difficulty of the task rather than a criticism of Fannie Mae's economics team, which recently won a prestigious academic award for forecasting accuracy.
Will Houses Get More Affordable in 2024?
1. Price Expectations: Fannie Mae anticipates a 2.8% annual increase in house prices by the fourth quarter of 2024, which is close to the typical 3% to 4% gain in a usual year.
2. Affordability Calculation: When factoring in steadily rising wages, it is calculated that first-time homebuyers may find home purchases to be about 5% more affordable than the present situation.
3. Focus on First-Time Homebuyers: The affordability discussion primarily centers on the outlook for renters aspiring to become homeowners rather than existing homeowners.
4. Challenges for Existing Homeowners: Existing homeowners are considered not to be significantly challenged, as they have locked in lower interest rates. They benefit from the appreciation of rapid house price gains and are not losing affordability due to the accumulation of home equity.
5. Affordability Tightening in 2024: The overall theme is whether the tightening of affordability in 2024 can be alleviated, with a focus on the potential impact on first-time homebuyers.
2. Affordability Calculation: When factoring in steadily rising wages, it is calculated that first-time homebuyers may find home purchases to be about 5% more affordable than the present situation.
3. Focus on First-Time Homebuyers: The affordability discussion primarily centers on the outlook for renters aspiring to become homeowners rather than existing homeowners.
4. Challenges for Existing Homeowners: Existing homeowners are considered not to be significantly challenged, as they have locked in lower interest rates. They benefit from the appreciation of rapid house price gains and are not losing affordability due to the accumulation of home equity.
5. Affordability Tightening in 2024: The overall theme is whether the tightening of affordability in 2024 can be alleviated, with a focus on the potential impact on first-time homebuyers.
Supply of Housing Remains a Big Issue
1. Affordability Challenges: Despite potential decreases in mortgage rates, there is not an expectation of a significant improvement in affordability.
2. Price Dynamics: Previous instances of rock-bottom rates coincided with surging prices. The analysis suggests that the key factor influencing price reduction is addressing the insufficient housing supply.
3. Supply and Demand Dynamics: The U.S. housing market has faced a prolonged shortage of homes. Since 2012, there have been 2.3 million more households formed than homes built, according to Realtor.com. The market is seen as dysfunctional as long as there is a substantial gap between the demand for houses and the available supply.
4. Need for Increased Construction: The fundamental solution, according to the analysis, lies in a significant increase in home construction. Simply attempting to lower mortgage rates without addressing the supply issue is not seen as a comprehensive solution.
5. Emphasis on Building Homes: The primary suggestion for addressing housing affordability challenges is a focus on actively building more homes to better align with the demand in the market. $Simon Property (SPG.US)$ $Prologis (PLD.US)$ $Equity Residential (EQR.US)$ $AvalonBay Communities Inc (AVB.US)$ $Brookfield Asset Management (BAM.US)$ $Zillow-C (Z.US)$
2. Price Dynamics: Previous instances of rock-bottom rates coincided with surging prices. The analysis suggests that the key factor influencing price reduction is addressing the insufficient housing supply.
3. Supply and Demand Dynamics: The U.S. housing market has faced a prolonged shortage of homes. Since 2012, there have been 2.3 million more households formed than homes built, according to Realtor.com. The market is seen as dysfunctional as long as there is a substantial gap between the demand for houses and the available supply.
4. Need for Increased Construction: The fundamental solution, according to the analysis, lies in a significant increase in home construction. Simply attempting to lower mortgage rates without addressing the supply issue is not seen as a comprehensive solution.
5. Emphasis on Building Homes: The primary suggestion for addressing housing affordability challenges is a focus on actively building more homes to better align with the demand in the market. $Simon Property (SPG.US)$ $Prologis (PLD.US)$ $Equity Residential (EQR.US)$ $AvalonBay Communities Inc (AVB.US)$ $Brookfield Asset Management (BAM.US)$ $Zillow-C (Z.US)$
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