January Market Report

January 22, 2024

The Big Story

Mortgage rates are plummeting, but how far will they fall?

Quick Take:

The average 30-year mortgage rate fell 1.18% in the last two months of 2023, which is a significant drop from the 23-year high reached at the end of October 2023 and cut the cost of financing by 11%.
Although sales are still down 7% year over year, they rose 1% month over month, ending a five-month streak of decline. Even though inventory rose for most of 2023, supply is still tight, which prevented home prices from falling meaningfully in the second half of the year.
The median home price declined approximately 7% in the second half of 2023, about half as much as the 13% decline in the second half of 2022. If the Fed begins to cut rates as soon as March, which financial markets are predicting, 30-year mortgage rates could easily fall another point, bringing buyers and sellers back to market in the spring and summer.

A 1.18% mortgage rate drop matters … a lot

The next Fed meeting isn’t until the end of January, but financial markets have already made major assumptions about what the Fed will do in 2024. In the December 2023 meeting, Fed members indicated there would likely be three 0.25% cuts to the fed funds rate by the end of 2024, but they noted a high degree of uncertainty. Markets took this news and made their own conclusions. As of January 3, 2024, fed funds 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 by a quarter point six times in 2024. Currently, the fed funds rate is between 5.25% and 5.50%. 
 
In any case, for the >70% of homebuyers who finance their purchases with mortgages, rate cuts are very good news, as shown by the month-over-month increase in sales. However, even before the December meeting, economic indicators seemed favorable for rate cuts, which, in part, caused mortgage rates to drop 0.57% in November 2023 — a significant fall from the 23-year high of 7.79% in October. Markets move a lot faster than the Fed, and the 1.18% mortgage rate drop in November and December brings to mind the trends we saw in the first quarter of 2022. In December 2021, Fed Chair Jerome Powell stated that they were increasing rates beginning in March 2022, but mortgage rates increased by about a point in the first quarter even before the Fed made any changes.
 
The 1.18% decline in mortgage rates has set the stage for a much busier spring and summer season, although we still expect a relatively slow first quarter. Interest rates are still too high for potential buyers and sellers to rush back to the market, especially when they expect further rate cuts. However, if mortgage rates were to drop another point to around 5.5%, a huge number of participants would jump back into the market. Remember that every 1% decrease in interest rates roughly equates to a 10% decrease in monthly financing costs. The inverse is also true, which is why rates have priced buyers out of the market and remain the primary cause of the market slowdown over the past two years. 
 
Because inventory hasn’t grown, prices haven’t meaningfully declined. In fact, home prices currently fall only 8% below the June 2022 all-time high, which means that any savings will likely come from rate drops. Even if a significant number of sellers come to market, there’s enough pent-up demand that inventory won’t be able to grow enough for prices to stagnate or decline outside of normal seasonal trends. On top of that, home prices almost always appreciate. In other words, betting on home prices to decline is statistically similar to betting on 00 in roulette. Nationally, the median price will likely hit a new all-time high in June 2024. The National Association of Realtors’ Chief Economist Lawrence Yun recently remarked that home prices keep marching higher, and only a dramatic rise in supply will dampen price appreciation.
 
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. 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 — Miami-Dade, Broward, and Orange

Quick Take:

Median home prices are slightly below peak levels across the selected Florida markets, and we expect prices to remain fairly stable in the winter months. When more buyers come to the market in the spring, prices could easily rise to new record highs in 2024.
Active listings, sales, and new listings fell month over month for single-family homes. However, condo inventory rose in Broward and Orange as new listings far outpaced sales. Rising inventory is definitely good for the housing market, which is likely to experience much higher demand in 2024.
Months of Supply Inventory has risen over the past six 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.

Median prices appreciated significantly in 2023 in the selected markets

In Florida, home prices haven’t been largely affected by rising mortgage rates — even recently 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. As interest rates decline, however, prices will almost certainly reach new highs in the first half of 2024 — possibly as soon as the first quarter of the year. The sustained downward inventory and low number of new listings will only raise prices as demand grows. More homes, however, 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 inventory, 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. In 2023, inventory didn’t have anything resembling the typical sine wave, since far fewer sellers came to the market, especially in the first half of the year. Typically, inventory peaks in July or August and declines through December or January. Single-family home inventory has barely increased at all in the past 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 through December in Broward and Orange. Even though inventory technically increased last 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 come to market in the first quarter.

As demand slows, buyers are gaining slightly more negotiating power and paying less than asking price on average. In December 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 slows considerably during the holiday season, but buyer competition will ramp up meaningfully in the spring, which will drive price appreciation.

Months of Supply Inventory rose meaningfully in the second half of 2023, 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 in the second half of 2023 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 buyers’ market. For condos, MSIs indicate that Orange is balanced, and Broward and Miami-Dade are in a buyers’ market.

Local Lowdown Data