As we wrap up 2023, let’s reflect on a year that was full of surprises in the real estate market. From fluctuating interest rates to resilient home prices and a robust labor market, this year was anything but predictable.
Interest Rates: A High Tide and Ebbing Waves
2023 was a landmark year for interest rates. The 10-year Treasury rate briefly soared above 5% in October, in sync with the 30-year fixed mortgage rate hitting a peak at 7.76%. Currently, we’re seeing the 10-year at 3.86% and the 30-year mortgage at approximately 6.61%. The spread between these two has remained elevated at around 2.75%. The Federal Reserve's actions, peaking the Fed Funds rate at 5.25-5.5%, were a crucial factor this year. Interestingly, the Fed has hinted at up to 75 basis points in rate cuts for 2024.
Home Prices: Surprising Resilience
Home prices remained remarkably resilient throughout 2023, despite rising interest rates. The median existing home price reached $387,600 in November, up 4% year-over-year. This steadfastness in home prices was quite unexpected in the face of fluctuating economic factors.
Inventory Levels: Tight but Improving
Inventory continued to be a challenge in 2023. In November, we saw a slight year-over-year increase in unsold listings to 1.13 million units. However, to put this into perspective, the total housing inventory in the US has averaged 2.27 million units since 1982, reaching an all-time high of 4.04 million units in July 2007. The reluctance of homeowners to sell, with about 70% having a mortgage rate below 4%, played a significant role in keeping inventory tight.
Inflation and Economic Outlook
Inflation cooled down to 2.6% in November 2023, marking the lowest rate since February 2021. This deceleration in inflation, especially the core PCE inflation rate slowing to 3.2%, indicates that inflationary pressures are moderating, aligning with the Federal Reserve's goals.
Jobs and Recession: Defying Expectations
The labor market showed remarkable resilience. Jobless claims averaged 212.0 thousand in the week ending December 23rd, and the unemployment rate dropped to 3.7% in November. Job vacancies, though slightly decreased from September, remained high. This continued strength in the labor market has led most economists to shift their predictions from a looming recession to a more optimistic "soft landing" scenario.
Looking Ahead As we move into 2024, the real estate market seems poised for new dynamics, shaped by the lessons and experiences of 2023. We will be coming out with our detailed 2024 forecast in January, providing deeper insights into what the future holds.
Here's to a year that was as educational as it was surprising. Wishing you all a prosperous New Year in real estate!
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