It’s that time of year again! Crazy Uncle Keith is making his best guesses about what 2024 holds in store for real estate.
Every year I get some right, and I get some wrong – but it’s always fun.
At the end of December, you all helped me grade my 2023 Predictions Report Card. It was mostly Bs with one C. Not too shabby. You can check out that mixed bag HERE.
Moving on to 2024 …
Recession: Just like last year, the specter of a recession is a big hinge point. In 2023, we managed to scoot along in “soft landing” mode and avoided it. That being said, I still think it is on the table for 2024. Maybe not a full-blown recession – two quarters of negative GDP is the normal measure. However, I do believe we will have an economic slowdown. And honestly, we need it. I’ll talk more about rates in a second, but usually when the stock market goes down rates also go down and that is really what we need to continue to bring buyers and sellers back into the market. More on the seller part in a few paragraphs too. It all ties together, doesn’t it?
Interest Rates: Over the last 24 months, rates went up as fast as they have in history. Papa Powell (better known as Federal Reserve Chairman Jerome Powell) was cranking rates as hard and as fast as he could to try to stem inflation. It worked. Kinda.
Then, he gave us all whiplash.
In a two-week period, Powell went from deliberately stating that he was willing to keep rates “higher for longer” to flirting with lower interest rates. That little flirtation looked like teasing the market with up to six rate cuts in 2024. The stock market loved that news and has been on a heater (off and on) ever since. Knowing all this, I say rates will continue to go down in 2024. I also think we could even go down to sub-6% by the end of the year.
Sellers “Locked In”: There was an effect of the Powell Rate Ratcheting that we’ve never seen in my 25 years in real estate. Sellers with equity and a desire to move couldn’t afford it. Why? Because rates had doubled since they purchased their house. While buyers have always come into the market when rates go down, we’ve also got a backlog of pent-up sellers that will come into the market slowly at first, then all of a sudden. Many reports show that 5% interest rates seem to be the tipping point for the full-on seller avalanche (not a technical term). But every rate decrease below 6% will see more and more sellers come into the market plus buyers coming into the market. My intuition is telling me that there will be a pretty hot real estate market as these two factors come together.
Real Estate Values/Units: Real estate values held steady in most markets across the country in 2023. In 2024, I think they will improve and go up – in some areas very quickly. This will be a bounce back market albeit a very rate sensitive one. Rates will matter a lot. Units are the big question. Real estate transactions were sub-4 million in 2023. They haven’t been that low since Gangsters Paradise was the number one song (1995). I’ve seen some forecasts predicting as high as 4.7 million units for 2024, but that is too aggressive for me. I think I’ll come in at 4.3 million. But if rates get down below mid 5’s then I’m changing that prediction closer to 4.5 million.
Outliers: There are two outliers that I am worried about: inflationary outliers and significant recession outliers.
Inflation: Inflation seems to be in the process of being put back in the bottle, and that is great. But there are things that can cause it to spike again. War, for example, is very inflationary. If a hot war broke out, say, in the Middle East, what do you think would happen to commodity prices in general and especially anything that touched oil? You guessed it: big-time inflation. If international conflicts get worse, then we could see inflation back, meaning the Federal Reserve will start raising rates again and all of the above paragraphs are moot.
Significant Recession: What we need is a nice little recession. One where people feel nervous about jobs and personal spending, but people don’t lose their jobs en masse. On a personal level, even a little recession would suck, but it would be great for interest rates. A bitty recession would cause the stock market to go down, which normally puts downward pressure on rates. In addition, the Federal Reserve would start cutting to stimulate the economy which also (normally) puts downward pressure on rates. Here’s where it gets tricky. Nobody wants a significant recession. If that happens, people start pulling back on big life decisions or selling their house – because they have to, not because they want to. It won’t be like 2008 because of all the equity built up. But it could dampen the real estate market for sure.
In Closing: While it is always fun to prognosticate, this all might look a little different depending on your market. Some markets in 2008 actually went up in value when most of the country had property values sliding off the table (how you doin’ South Dakota?). Real estate is hyperlocal and you should always work with a local professional to evaluate all your options when exploring the best time for you to sell.