Introduction
As we start a new year we would do well to try and understand what the market will be like over the next twelve months. Like everyone else, my crystal ball is pretty cloudy, but we can take some educated guesses. Most everyone agrees that there is a lot of pent-up demand. There are many interested buyers, but there are two significant obstacles for them, and therefore the market.
It is important to note that Real
Estate is hyper local. This prediction is primarily for southern Frederick County
and Northern Montgomery County. Down county in Rockville, Bethesda and Chevy
Chase may be completely different.
Low Inventory
The first issue is availability of properties to buy. We have been experiencing historically low inventory for the last five plus years and it was particularly low in 2023. Inventory was trending lower before the pandemic, and of course was exacerbated by the pandemic. Here are some of the reasons behind the lack of inventory:
o Remote work – with the maturation of cell phones, internet tools, cloud computing and storage, people can work from wherever they are thereby reducing the need to relocation for a new job.
o Low locked in mortgage rates – many people refinanced their mortgages, often to less than 3% making them reluctant to take on a new mortgage at a higher rate.
o Ageing in place – It is much easier for the baby boomer generation to age in place than in the past. As of 2021 they owned 44.1% of all real estate in the U.S. keeping many homes out of the market.
o Lack of new home construction – Since the great recession in 2007/2008, new home construction has not kept up with demand. Exacerbating this problem are materials supply chain issues, labor shortages and increases in the material cost.
o Governmental policies - The U.S. has failed to keep up with the housing demands of a continually increasing population. These policies may include:
· Zoning and permits for new home construction.
· Limiting the types of housing
Unfortunately, low inventory becomes a cyclical issue. When people feel like they cannot find a place to buy or rent, they don’t want to sell their home and be homeless.
Interest Rates
The second issue is interest rates. Interest rates have skyrocketed over the last two years, going from 2.66% at the end of 2021 to a max of 7.79% in late October 2023 and finally back down to 6.6% at the time of this writing on 1/15/2024. These higher rates have made it very difficult for buyers, particularly younger buyers, to qualify for a loan for the home they want. They will wait for the interest rate to come down to be able to afford the right home.
For most observers, the
robustness of the market hinges on interest rates. Many see interest rates
going down this year, however not as much as we would like. The thought is that
the rates will be reduced modestly in the first quarter, and then loosened some
as the year goes on. The consensus seems to be the year will close with
interest rates just above 6%, and even lower in 2025.
While this is good news, unfortunately,
we live in an extremely volatile world today where world events can impact
those rates. Globally, there are several wars that can impact our economy. The
war around Israel/Iran region is threating to grow substantially. Ukraine is
begging for more support against Russia. China is flexing their muscles in a threateningly
way too. We also have an increasingly bitter political division within our own
country with a presidential election where the results will probably be
contested with much turmoil.
On that last point, presidential
elections also tend to have a suppressive effect on the Real Estate market. This
is because the prospect of a new president tends to create uncertainty
about the future economy, and homebuyers become more cautious as a
result. People feel more comfortable with one of the largest financial transactions
of their lives when they know the result.
What is coming in the next year?
So, what does all this mean for the market over the next year. By traditional measurements, it will be a seller’s market for the first quarter a lot like the last quarter. However, it will probably feel like a normal market where there are one or two offers with negotiations between buyers and sellers. Spring will probably be a stronger seller’s market quite possibly with multiple offers returning. The balance of the year will probably be more like the first quarter unless interest rates fall below 6%. All in all, it is probably a good year to sell if you know where you are moving to.
If you are considering selling your home, whether in the next six months or the next few years, I would be happy to help you. If you are still on the fence, please use me as a sounding board; You will not get pressure from me to move, just what I hope is a helpful conversation.
Finally, if you found this article helpful and you know of someone who is planning to buy or sell, I would appreciate your referral. Call/text me at 301-873-2106 or email me at BReynolds@LNF.com.
We will get you taken care of.
