Even though Fed Chair Jerome Powell remarked that it’s too soon to definitively conclude that rate hikes are finished, the financial markets have, in fact, decided they’re finished. As of December 4, 2023, interest-rate futures traders (the people who make a lot of money being right about where rates will go) expect the Fed to cut the federal funds rate, which currently falls between 5.25% and 5.50%, by 1.25%.
As a quick recap, the Fed dropped the fed funds rate effectively to 0% at the start of the pandemic and purchased mortgage-backed securities. The already historically low average 30-year mortgage rate then fell even further, reaching a record low of 2.65% in early 2021, which fueled the housing boom from June 2020 to June 2022. Inflation spiked in 2021, hitting levels not seen since the early 1980s and causing the Fed to begin rate hikes in March 2022, which trickled through markets quickly. From the beginning to the end of 2022, mortgage rates more than doubled, ending the white hot housing market and creating the slow-paced 2023 market. Mortgage rates continued to rise in 2023, hitting a 23-year high of 7.79% in October. Luckily, the average 30-year mortgage rate contracted in November 2023, falling to 7.22% by the end of the month.
It’s hard to convey the full significance of higher mortgage rates on the housing market but, in short, they are the primary driver of the market slowdown. This is evidenced by the fact that the market began slowing down at almost the exact same time that the Fed began their rate hikes. In October 2023, a buyer’s monthly cost reached an all-time high when accounting for the cost of financing a mortgage. Redfin reported the highest rate of buyers backing out of home purchases on record, as home buyers experienced the sticker shock of the cost to finance the home. It should come as no surprise that sales continued to fall and will likely continue to decline through the winter months.
Now, back to our outlook for the year ahead. The falling sales in 2023 have allowed inventory to grow, which is much needed. Although inventory is still down 6% year over year, it has increased 20% in 2023 and will likely continue to increase through the rest of the year, which is far different from the typical seasonal trend of increasing in the first half of the year and declining in the second. In Q1 2024, we expect inventory to rise further, helping ease the low supply problem. Greater supply will be necessary because mortgage rates should decrease meaningfully with the anticipated rate cuts, driving up demand. A 1% decrease in interest rate equates to a 10% decrease in monthly financing costs. At this point, we expect a large number of would-be buyers to wait a little longer to gain more clarity around rate cuts in 2024 and hit the market in the spring and summer months.
Different regions and individual houses vary from the broad national trends, so we’ve included a Local Lowdown below to provide you with in-depth coverage for your area. In general, higher-priced regions (the West and Northeast) have been hit harder by mortgage rate hikes than less expensive markets (the South and Midwest) because of the absolute dollar cost of the rate hikes and limited ability to build new homes. The National Association of Realtors’ Chief Economist Lawrence Yun recently remarked that multiple offers are still occurring, especially on starter and mid-priced homes, even as price concessions are happening in the upper end of the market. As always, we will continue to monitor the housing and economic markets to best guide you in buying or selling your home.
Big Story Data
The Local Lowdown
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The median Broward County condo price hit an all-time high in November. Prices in every market are still near their record highs, and we expect prices to remain fairly stable in the winter months.
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Active listings, sales, and new listings fell month over month for single-family homes. However, condo inventory rose across markets. Rising inventory is definitely good for the housing market, which is likely to experience much higher demand in 2024.
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Months of Supply Inventory has risen over the past five months, indicating the market has shifted in buyers’ favor. It’s common for MSI to trend higher in the fall and winter, when fewer buyers are in the market and sales slow.
Note: You can find the charts/graphs for the Local Lowdown at the end of this section.
Home prices declined in November, in line with seasonal norms
In Florida, home prices haven’t been largely affected by rising mortgage rates — even reaching all-time highs during a period of rapidly rising mortgage rates. In November, the median condo price in Broward reached an all-time high, but prices across the selected markets are all near peak. Price contractions are normal in the second half of the year, so we can’t conclude that higher rates have had any meaningful effect on prices in these markets. We expect prices to remain stable in the winter months, but as interest rates decline, prices will almost certainly reach new highs in the first half of 2024 across markets. Additionally, the sustained low inventory level will only raise prices as demand grows. However, more homes must come to the market in the spring and summer to get anything close to a healthy market.
High mortgage rates soften both supply and demand, so ideally, as rates fall, far more sellers will come to the market. Rising demand can only do so much for the market if there isn’t supply to meet it. Unlike 2023, 2024 inventory has a much better chance of following more typical seasonal patterns.
Inventory, sales, and new listings declined month over month for single-family homes, but condo supply increased
Single-family home and condo inventory have bucked typical seasonal trends since the pandemic began and people rushed to move to Florida. Typically, inventory peaks in July or August and declines through December or January. Single-family home inventory has barely increased at all this year, which highlights the desirability of the selected markets. However, more new condo listings have been coming to the market, causing condo inventory to increase across the selected markets in November. Inventory trended higher into the fall of 2023, which is far from the seasonal norm. Even though inventory technically increased this year, it’s still historically low, moving higher primarily due to softening demand (fewer sales) caused by higher interest rates and low inventory. Any increases in supply are good for the market, and we hope to see more new listings during the winter months.
As demand slows, buyers are gaining slightly more negotiating power and paying less than asking price on average. In November 2023, the average buyer paid 92-94% of list price, so both buyers and sellers should expect the sale price to be less than the list price in most cases. The market will likely be slower during the holiday season, but buyer competition will ramp up meaningfully in the spring, which will create price support.
Months of Supply Inventory rose meaningfully over the past five months, indicating that housing markets are trending in buyers’ favor.
Months of Supply Inventory (MSI) quantifies the supply/demand relationship by measuring how many months it would take for all current homes listed on the market to sell at the current rate of sales. The long-term average MSI is around four to five months in Florida, which indicates a balanced market. An MSI lower than four indicates that there are more buyers than sellers on the market (meaning it’s a sellers’ market), while an MSI higher than five indicates there are more sellers than buyers (meaning it’s a buyers’ market). MSI rose significantly over the past five months largely due to the decline in sales and longer time on the market. MSI for single-family homes still suggests a sellers’ market in Orange, while Broward shifted to a balanced market and Miami-Dade to a sellers’ market. For condos, MSIs indicate that Orange is balanced, and Broward and Miami-Dade are in a buyers’ market.
