While higher for longer has been the name of the game for the Fed in 2024, the markets have had a hard time grasping the concept. Even with the Fed’s cautious signals, entering 2024 the markets were pricing in 6 benchmark lending rate cuts. Those cuts in turn were supposed to bring mortgage interest rates down, and for a time they did drop into the mid 6’s in January. Things are not so rosy in the housing market currently, as rates have risen back into the high 6’s, which not only makes a financial difference for buyers, it hits them hard psychologically.
With the spring 2024 selling season fast approaching we were hoping to see the mortgage interest rates heading in the opposite direction. There are still enough buyers out there for the few properties that are on the market, but in all likelihood we won’t be seeing super charged multiple offer situations on listings until rates begin to retreat again. This makes pricing strategy paramount. One old real estate adage is that you can never price a property too low. Never say never. The last thing you want to do right now is price a property too low, and only end up with one or more offers around an unacceptable asking price.
Currently pundits are all in agreement that mortgage interest rates will come down. This theory is based on the following assumption, “Mortgage rates are expected to decline later this year as the U.S. economy weakens, inflation slows and the Federal Reserve cuts interest rates. The 30-year fixed mortgage rate is expected to fall to the low-6% range through the end of 2024, dipping into high-5% territory by early 2025.” https://money.usnews.com/loans/mortgages/mortgage-rate-forecast. But what if the economy doesn’t weaken (it hasn’t, as GPD expectations have increased), and inflation doesn’t come down to a level where the Fed thinks it’s prudent to cut interest rates? I suspect that would mean the expectation of interest rates in the low 6’s and even breaking into the 5’s could be unrealistic.
January’s CPI (Consumer Price Index) came in hotter than expected at 3.1%. On a monthly basis CPI rose .3%. Core CPI, excluding food and energy, was 3.9%. These are not numbers that scream, “Cut rates!” Quite to the contrary the Fed has been preaching patience. They aren’t going to start cutting rates until they are not only sure the CPI is heading towards 2% because they want to make sure it stays there. The last thing they want to do is get into another inflationary cycle and have to raise interest rates again.
I’m posting this blog over the weekend because the next round of CPI numbers is slated to be released Tuesday 3/12 at 5:30am PST. The forecast for the next round of data is 3.1%. If the number comes in a hotter, there’s going to be a whole lot of hand ringing and possibly more revised predictions for 2024. Plus the stock market could come down a notch. Already there has been talk on the street of no rate reductions in 2024.
What does all this mean for sellers and buyers? I’ve always been of the mindset that buyers should ignore the noise, and if they find a property they like, can afford and will want to stay there long term there is no better investment. Sellers are going to sell. There just aren’t enough sellers with our chronic housing shortage. The spring selling season is fast coming upon us. Despite the elevated interest rates sellers should still do well this year. They just might not do as well as they hoped.