Many Americans are suffering a housing affordability crisis, but better days are on the way in the second quarter of next year, when mortgage rates will begin to fall, according to industry experts.
Lawrence Yun, chief economist for the National Association of Realtors, predicts that 30-year mortgage interest rates will be floating around 6 percent by next spring.
Speaking at an event held by the Hudson Gateway Association of Realtors in White Plains, New York, Mr. Yun told The Epoch Times that he believes brighter days are ahead for the real estate industry in the second quarter of 2024.
“This has been a difficult year, and I do think interest rates and home sales will improve early next year. Total sales may still be slightly lower than 2019, but definitely an improvement over 2023.”
Blaming rising interest rates, sinking inventory, and runaway inflation for the current lull in the market, Mr. Yun indicated the environment for buying a home–especially for first-time home buyers—is not an ideal one.
“When you go to the grocery store, you see that a dollar is not what it used to be, and you can’t buy as much. The pre-COVID inflation rate was around 2 percent and last year it was 9 percent,” he explained “The good news is that inflation is now trending downward, so we’re asking the Fed to stop raising interest rates as inflation returns to normal.”
Rents have also experienced a significant hike—up by 7.8 percent and car insurance, a whopping 19.1 percent, he said.
With current interest rates in the mid 7 percent range, mortgage rates are at a 20-year high.
“Another problem is that America’s debt rating has been downgraded from AAA to AA due to the large budget deficits from this year and the past three years,” added Mr. Yun, referring to Fitch Ratings’ recent downgrade of the U.S. credit rating.
“The national debt is at its highest level and that’s something else that can cause the interest rates to be higher.”
Valerie Saunders, president of the National Association of Mortgage Brokers (NAMB) agrees with Mr. Yun’s assessment.
“We also strongly encourage the Federal Reserve to consider reducing interest rates by that time,” she told The Epoch Times. “NAMB and its membership recognize that the ability to purchase a home is a critical factor in the overall economic health of the United States and adds to the financial security of the nation’s citizens.”
Ms. Saunders added that lowered interest rates have the potential to make home buying more affordable for a broader range of people.
Mr. Yun reported existing home sales are down 21 percent from last year, but newly constructed home sales are back to pre-COVID levels. “This is where the inventory is, but higher costs of new construction can still present financial problems for first-time buyers,” he said.
Residential prices in the lower and mid-range are still climbing with multiple offers, while the higher end homes seem to have some price concessions.
Karen Hatcher, CEO of Sovereign Realty & Management in Atlanta, Georgia, admits that the first quarter of 2024 is unpredictable when it comes to home costs and mortgage interest rates.
“Right now, nobody knows what the interest rates are going to do,” she told The Epoch Times. “But I tell those people who are really looking to purchase a home not to let the rates drive their decision. They can always refinance later.”
As for rising home costs, Ms. Hatcher suggests first-time buyers choose a starter home that may need a little work.
“They can always update the bathroom or kitchen, paint or change light fixtures,” she explained. “They’ll be growing equity, and, in a few years, they’ll be able to upgrade. The ‘perfect home’ is not instant—it’s always a process. I tell them to fall in love with the journey.”
As in many markets throughout the nation, Ms. Hatcher said younger people who have never owned property will also have to face the reality of taking on tasks like landscaping, gutter cleaning, and other home improvement projects.
“Many of them are renting and don’t have to worry about things like this, but by continuing to rent, they’re going to miss the boat and years of building equity,” she said.
Teresa Kinney, CEO of the Miami Association of Realtors, told The Epoch Times that inventory remains at an all-time low and the beginning of 2024 may not see much change.
“It’s about supply and demand. Population growth and demand from domestic and international buyers is very high,” she said. “Historically, a market with less than six months of supply will have appreciating prices. Miami single-family homes and existing condos are at 3.5 and 5.4 months, respectively.”
Miami has also experienced nearly 12 years of consecutive home price growth, the longest streak on record.
“In-migration boosted South Florida household income by $16 billion in 2021,” she added. Their data indicates new households moving into Miami-Dade in 2021 had an average adjusted gross income of $229,300, and $102,600 in Broward County.
“New households moving into Palm Beach County showed one of the highest average adjusted gross incomes of $242,200.”
Due to Miami’s strong luxury market, continuously ranked among the best in the world, Ms. Kinney believes home prices in the region could continue to rise during the first quarter of 2024.
In the meantime, Mr. Yun described proposed legislation that could help to boost inventory by increasing the amount of allowance before capital gains tax. The current law states that any home sale profits over $250,000 are subject to capital gains tax. “This amount hasn’t been changed in 25 years, and so many home sales today are giving homeowners profits way beyond that amount,” Mr. Yun explained. “Think of the price of a movie ticket or a hamburger 25 years ago, and it’s a huge difference. Yet this allowance has never been increased.”
In this situation, potential home sellers could face not only higher interest rates but huge amounts of capital gains taxes. “As a result, they’re reluctant to sell, adding to the lack of inventory on the market,” he said.
On a positive note, Mr. Yun shared research indicating there are huge populations of Americans who are ready to buy once the market begins to stabilize. These include 3 million new marriages each year, seven million new babies, seven million people turning 65, and four million with new jobs.
