Hiked interest rates played an important role in the climate of the real estate market in 2022 and 2023 — but thankfully, there may be some relief in sight. The Federal Reserve met on December 13 to discuss the future of rates, including a decision to hold rates steady for the time being.
And good news! Economists are fairly confident there could be rate cuts in our future — as early as March 2024, and even more probable for May 2024. The severity of the cuts — not to mention the timing and frequency — takes into account many factors, based on inflation and other economic conditions.
However, if we’re to take the word of forecasters and economic experts as we look into our crystal ball for the real estate market in 2024, here’s what could happen if rates were to drop. While the cuts might not be significant, they could be just enough to cause a shift in an otherwise fairly stagnant market.
A Shift in Housing Prices
Much like a double-pan balance shifts to accommodate weight adjustments on one side, lower interest rates typically translate to lower mortgage rates, making homeownership more accessible to a broader segment of the population. This may cause housing prices to increase slightly, which is excellent news for sellers. However, prospective homebuyers may now find themselves in a more favorable position, with reduced monthly mortgage payments, making a higher price less intimidating. This increased affordability can stimulate demand in the housing market, as individuals who were previously on the fence about purchasing a home may now find the financial commitment more feasible. Keep in mind that prices could actually dip if buyers are outnumbered by sellers.
A Decline in Rate Lock-In
While rates steadily rose in 2022 and 2023, homeowners who had secured low rates in 2020 and 2021 (below 4% and even under 3%) felt “locked in,” refusing to give up their low rate in exchange for rates nearing 8%. As rates potentially come down again — while not quite as low — and these homeowners have built up a little equity over the years, they may have more willingness to sell. It’s also important to remember that finances aren’t the only driving factor inspiring someone to move; there may be other factors that outweigh the budget, such as relocating for a job, needing more space for a growing family, desiring a different neighborhood for lifestyle reasons, etc.
More Inventory + Maintained Balance
Believe it or not, we’ve experienced a relatively stable and balanced market over the last year or so, as less homes have been available, yet less people have been looking to buy. As more homeowners become willing to sell their homes, inventory will increase at the same time buyers are re-entering the market, which will continue to stabilize that seller-buyer balance. It won’t necessarily be an exclusively “seller’s market” or “buyer’s market;” instead, there will be benefits for both parties.
More New Construction Homes
A major factor contributing to housing prices is the amount of inventory available for buyers to choose from. It’s the classic issue of supply vs. demand! Thankfully, new construction homes are a way to bypass seller behavior, as you’re able to increase inventory artificially, which will likely drive prices downward. There was a drop in building permits in Northern Colorado in 2023, but new construction is expected to rise across the country as economic conditions improve and as more buyers are entering the market.
Opportunities for Refinancing
If you’re not looking to buy or sell in 2024, there’s good news for you too! If you bought while interest rates were at their highest over the last couple of years, you may have an opportunity to refinance your current mortgage in 2024. The dip might not be significant, but it could be enough to reduce your monthly payment! Get in touch with our team at Group Mortgage if you’re interested in refinancing this year.
Increased Competition
The downside of waiting until rates drop is that everyone else is doing the same thing. This might create increased competition in 2024 — especially during the spring and summer months, when competition is already expected to rise. This can create bidding wars and force buyers to pay a little more than they were hoping to. But this is excellent news for sellers, who will potentially have a shorter time on market and more alluring offers to choose from. Either way, with an expert real estate agent by your side, you’ll be able to navigate the complexities of a competitive market!
A Dip in Rental Prices
If you’re still on the sidelines for buying a home in 2024 and choose to rent instead, you may find some relief as well. Apartment buildings have had a building spree in recent years, as many opted to rent instead of buy. So now, they are catching up with vacancy as some have slightly over-built, and prices are dropping as a result. This trend is expected to continue, especially as more renters turn into first-time homebuyers.
Whatever Happens, We’re Here!
No matter what happens in 2024, The Group is by your side every step of the way. Our agents are extremely knowledgeable about both the buying and selling process and the nuances of the local market.
Start your home search today and contact us with any questions related to buying or selling in Northern Colorado.
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