• Starter homes under 1,400 square feet now make up just 9% of new builds, down from 40% in 1982. Rising construction costs, limited land, and restrictive zoning laws are key factors behind this decline.
• Home prices have surged over 52% nationwide from January 2020 to October 2024, while labor and material costs rose by 50% over the last decade. Land prices have climbed two and a half times more, making affordability a major issue.
• First-time homebuyers face record-high barriers, with their median age reaching 38 in 2024, compared to 29 in 1981. Meanwhile, an unusual market dynamic shows low first-time buyers but a high number of cash buyers.
• Homebuilders say they are contending with rising construction costs and limited availability of land in addition to government red tape.
• The death of the starter home sped up after the 2007-2008 global financial crisis as the homebuilder industry consolidated. The annual rates for new home construction remains well below those observed in the early 2000s and years prior.
  
• “It is such an unusual market because we have an all-time low of first-time home buyers, but an all-time high of all-cash buyers,” said Jessica Lautz, deputy chief economist at the National Association of Realtors.

Courtesy of CNBC.com, read more at their website

• Massachusetts ranks as the best state for raising families, despite its high costs, with a median list price of $985,000. It excels in education, job security, and health care quality, including the lowest infant mortality rate in the country.
• Minnesota secures second place with a median family income exceeding $104,000 and the second-lowest poverty rate. The state is noted for its excellent public health systems and high rates of family stability with a low divorce rate.
• North Dakota ranks third, with families spending just 16.5% of their income on average annual rent. It also shines in child care quality, with the second-highest number of daycares per capita and one of the nation’s lowest separation rates for families.

Courtesy of Realtor.com – Read more at Realtor.com

A half-point rate cut would send a signal to the market that the Fed is serious about reversing the “lock-in” effect that makes homeowners with low-rate mortgages reluctant to sell in a high interest-rate environment. If the Fed reverses course as aggressively as it raised rates, financing costs would go down, creating a flood of inventory of existing homes and taking some heat off prices.

The Fed can’t build houses, but it can — by indirectly influencing mortgage rates with its benchmark rate — make the prospect of selling more appealing for homeowners. Already, market anticipation of a rate cut at the September Fed meeting has brought mortgage rates down to 6.2% last week, from 6.7% at the beginning of August.- CNN Reports.

Now, the half point would surely help to cut borrowing cost and help the lenders to bring down rates. As I was saying to many of my investors and clients, I am expecting the rates to drop to 5.5% by end of end of year for 30 year mortgage.

Also many current homeowners don’t want to put the house in the market because they are locked in lower mortgage rates don’t want to sell it and buy another house in higher rate. This should ease up a bit and have them come out of the shell which will increase the inventory to ease inventory crisis.

We are hoping this start of mortgage rate correction and hope to boost the housing demand crisis and help the next year Real Estate market. Let’s wait and watch…

At beginning of the year and even in February blogs/videos, I have eluded to the expectation that we will see rate cuts this year which might help the Real estate market. But seems like that’s not going to happen.

• Hot economic indicators in 2024 challenge the anticipation of Federal Reserve rate cuts. A robust economy with a 3.3% GDP increase, 353,000 new jobs in January, and a 3.1% inflation rate may keep interest rates high.
• Stocks might still perform well despite high interest rates, but bonds and real estate could face significant challenges. The S&P 500 is expected to yield strong returns, not because of potential Fed cuts, but due to the groundwork laid by previous Fed policies.
• The commercial real estate sector, especially office spaces, is under pressure from the Fed’s high-rate environment. With a looming debt maturity wall, property owners face refinancing at higher rates and lower valuations, potentially leading to $1 trillion in losses in the office market.

In the residential sector, failure to bring rates down meaningfully would lead to another year of frozen markets. It would likely be a repeat of last year, when inventory was woefully low and sales were the lowest since 1995. 

“The real estate market would be undercut by the Fed’s failure to cut interest rates,” according to analysts.

With that being said, you never know about Feb and they might come out and do rate cut in Jun to boost home buying. But they don’t, then we are going to see repeat of 2023 and market is going to build inventory and many buyers and investors might stay away and continue to rent like they been doing since end of 2022.

Again, another waiting game but most likely seems like we might get a boost from my prediction..

Many expected the mortgage rates to slowly drop this year as the economy is doing good and steady and there is no Fed rate increase. But things are happening in opposite direction as of Feb 8th, 2024.

• Mortgage rates have surged over 7%, with the 10-year bond yield jumping back over 4%. This increase is 40 basis points higher than a month ago and 100 basis points higher than a year ago, potentially impacting buyer momentum.
• Inventory levels are falling each week, a common trend for February, but inventory is 8.8% higher than last year. There are currently 497,000 single family homes unsold across the US, indicating a slight increase in sellers compared to the previous year.
• Home prices continue to rise despite high mortgage rates, with the median price of single family homes in the US just under $425,000. Prices are a few percent higher than last year at this time, suggesting strong buyer demand and a market that could hit new all-time highs by May.

What’s going on?

Important reason is that US Job market outperformed expectations in Jan 2024 with surging job numbers. That made Fed Reserve to act conservatively and not to cut rates and make any drastic move till May/Jun. Because of that decision and bond markets going high, interest rates have gone up to 7%. See the image below.

• The U.S. job market outperformed expectations in January 2024, with a significant surge in job growth and unemployment remaining low. Employers added approximately 353,000 workers, marking the largest one-month gain in a year and nearly double the rate economists forecasted.
• Job gains were widespread across major industries, with notable expansions in Education and Health Services, Professional and Business Services, and Trade, Transportation, and Utilities. This broad-based growth indicates a resilient and expanding job market, despite high interest rates.
• The unemployment rate held steady at 3.7% for the third consecutive month, maintaining a level below 4% for two years—the first occurrence since the late 1960s. Average hourly earnings rose by $0.19 from December to January, highlighting ongoing wage growth that surpasses rising prices.

What does it mean now?

Many are still expecting to have the Fed rates cut in the month or so to help the real estate market but we cannot be sure. If no cuts in the rates, that would keep the interest rates possibly on the higher side depending on the bond movement which is major player. Only mortgage rates going done will have major impact in the housing market in many markets.

Let’s hope for better rates to help consumers to buy more affordable homes!!