As investors, navigating the uncertainty of the market is always a challenge. Today, we’re going to take a look at what the future might hold for the housing market in the second half of 2024, armed with insights from seasoned investors and market watchers.
State of the Real Estate Market (So Far)
Before diving into predictions, let’s take stock of where the real estate market stands as of late July 2024. The rate on a 30-year fixed mortgage is at 6.81%, while FHA loans are somewhat lower at 6.25%. The median home price has climbed to $442,000, marking a 4% increase year-over-year. Inventory has risen by 23% compared to last year, but it’s still down 50% from pandemic highs and about 25-30% from pre-pandemic levels. This context helps frame our discussion on what might come next.
Inflation and Its Impact on Housing
Inflation Predictions
Morningstar forecasts the Personal Consumption Expenditures (PCE) inflation gauge to average 2.4% in 2024, with a decline to 1.8% by 2025. Bloomberg, however, predicts inflation will be around 2.6% by year-end. Some experts think these forecasts might be realistic, especially considering housing and insurance costs have been significant contributors to inflation. Recent data suggests housing inflation is starting to moderate, which could be a positive sign for overall inflation trends.
Others share an optimistic view, noting that with slower wage and job growth, consumer spending might decrease, further aiding in bringing down inflation. However, there is caution about predictions extending into 2025 and beyond, as they might signal a potential recession or additional stimulus measures.
Job Market Insights
Labor Market Predictions
Morningstar anticipates a slowdown in job growth until late 2025, with unemployment possibly rising by about 1 percentage point, reaching the high 4% range by 2026. This increase wouldn’t necessarily spell disaster, as historical unemployment rates have been much higher during past economic crises. The current job market’s resilience is attributed to previous massive stimulus and a gradual shift from tight monetary policies.
Concerns remain about potential further layoffs, especially in tech sectors. While a minor to moderate increase in unemployment is likely, it’s not expected to reach crisis levels akin to the 2008 recession.
Federal Reserve Actions and Rate Cuts
Fed Rate Cut Predictions
The Federal Reserve’s actions will be crucial for the housing market. Predictions vary, with some expecting the Fed to cut rates twice in 2024, totaling 50 basis points, while others forecast one rate cut this year.
A cautious prediction suggests one or possibly two rate cuts. Any rate adjustments are unlikely to be dramatic but could offer some relief. A more assertive stance anticipates at least two rate cuts—one in September and another potentially in November. This approach might balance the need to stimulate the market while avoiding reigniting inflationary pressures.
Mortgage Rates: A Stable Forecast
As we approach the end of 2024, predictions for mortgage rates are relatively consistent across major institutions. Fannie Mae and Freddie Mac anticipate rates between 6.5% and 6.7%, with the Mortgage Bankers Association slightly lower at 6.6%. Despite these predictions sounding modest, it’s important to note that these forecasts closely mirror current rates.
Mortgage rates are closely tied to the 10-year U.S. Treasury yield rather than directly influenced by Federal Reserve actions. The 10-year Treasury yield has recently decreased, reflecting the Fed’s changing rhetoric and signaling potential stabilization in mortgage rates. Therefore, waiting for a significant Fed rate cut might not be worthwhile, as most of the expected rate changes are already factored in.
2025 Home Prices: Mixed Predictions
Looking ahead to 2025, forecasts for U.S. home prices vary significantly. Data shows predictions ranging from a modest 0.5% increase by Freddie Mac to a more optimistic 4.8% growth. Goldman Sachs and Wells Fargo project growth around 4.3% to 4.4%, while Moody’s and Fannie Mae predict much lower increases.
One forecast suggests a conservative 2.5% growth, citing a flat market with potential offsetting factors like increased supply from homeowners unable to sell due to current mortgage rates. Others foresee more dynamic changes, with rates potentially lowering and stimulating demand, possibly leading to a 4.8% increase in home prices.
Housing Market Stability and Potential Risks
Despite some predictions of price increases, a dramatic housing market crash is considered unlikely. The market is expected to experience slower growth and regional variations, but not a nationwide decline.
A provocative prediction suggests a 20% drop in housing prices due to demographic shifts and generational differences. However, this claim is viewed as overly speculative and unsupported by current data, emphasizing that such drastic changes are improbable.
Conclusion
Navigating the housing market in the latter half of 2024 requires careful consideration of multiple factors, including inflation, job market trends, Federal Reserve actions, mortgage rates, and home price predictions. While predictions can provide guidance, the future remains uncertain. Stay informed and continue to monitor these developments to make well-informed investment decisions.