Where is the Housing Market Heading?
Where is the market headed? There are no guarantees. In 2023, I was telling my seller clients to wait until 2024 to sell because all signs were pointing that interest rates were going to be down and as soon as that happened, we’d have a ton of buyers that would help push prices back up. Well, that didn’t happen. And, in fact, rates went down a tiny bit and we actually had fewer buyers in the market.
Just like last year, a lot of reliable sources are saying that interest rates will go down next year, but I’m very skeptical they go down much at all. Why? We’re hearing that a lot of the policies Trump wants to put in place will help improve the economy which means there will be more spending. When we have more spending, we have more inflation. When we have more inflation, the FED starts to increase the Federal funds rate to help slow things down. Which then pushes mortgage rates up.
Now, it typically takes a year or two for new presidential policies to start taking effect in the economy, so I doubt we see major economic changes in 2025. Therefore, any swings in mortgage rates in the first half of next year will be dependent on any changes in our employment and CPI numbers over the next 3-4 months. And right now, we’re not seeing any signs of significant changes in either of those that would move the needle down for mortgage rates. In fact, the most recent unemployment applications report shows that we’ve decreased in the number of people filing for unemployment and that it’s actually at a 7-month low. And the Fed Chair recently was quoted saying, “The economy is not sending any signals that we need to be in a hurry to lower rates.”
Today rates are at 7.04% and I think it’s quite likely we’ll see them stay around 7% through the end of the year and even the first quarter of next year. It’s a little too early to forecast what we can expect in Q2. Mortgage applications are down year over year, and that’s been pretty consistent with this entire year. Last year at this time, rates were at 7.4%. So it’s peculiar that with higher rates, we had more people apply for loans. I think a lot of this is because people have been holding out for lower rates and want to wait until they do. It was so widely believed we’d see rates in the mid to low sixes this year and people were waiting for that to happen. And then when it did hit that for a hot minute, people thought they were going to keep going lower so continued to wait.
I think if more people and news outlets get out the message that rates in the high sixes and low sevens are here to stay, more people will accept this as the new norm and get back into the market. Anectodally, we are hearing from clients they’re going to wait until the spring to either buy or sell. So we are anticipating an increase in inventory and demand as people get tired of waiting and decide to move forward. Also, if we do start to see more economic prosperity, people won’t feel so burdened by the higher interest rates and that will help them feel better buying a house with a 7% interest rate.