Section 202 of the Federal Reserve Act of 1977 vests the Fed with the power to control inflation. When things become overheated, the Chairman and the Board of Governors often raise interest rates to slow down overzealous consumers and encourage them to sit on their purses and hide their wallets. As we approach the second anniversary of Jerome Powell’s momentous decision to begin raising rates, it might be helpful to think about the often-cited phrase, first reported in the New York Times back in 2000…
“When the Fed slams on the brakes, somebody goes through the windshield”.
Well, it’s pretty easy to see that the US real estate market, responsible for 21% of the national economy, was not only thrown through the windshield but was then run over by Jerome Powell before he threw the car’s transmission into reverse to ensure that the job was complete. Although unpleasant, the act needed to be done. The real estate sector is often the first to experience the impact of economic malaise, which also positions it to be at the forefront of recovery. This pattern suggests that, like a tree in late winter, dormant but preparing for spring’s rebirth, the national real estate market may be showing early signs of awakening.
Market Trends
- New listing volume is up. Sellers turned out in higher numbers this November as newly listed homes rose 5.8% above last year’s levels. This marked the end to a 17-month streak of declining activity.
- Inventory, a metric closely related to listing volume, has also peaked for the year- and, although it’s not a particularly large number, the number of homes available for sale in November of this year was .07% higher than in November of 2022.
- Newly consummated transactions are up 5% over the same week last year. This comes after an entire year’s worth of data showing that national sales had been trailing last year’s activity by a minimum of 20% per week.
- Personally, our team has experienced its fifth consecutive month of sales that exceeded sales for the same month last year.
On the Economic Front
- The Personal Consumption Expenditures or PCE- the Central Bank’s favorite gauge of inflation- grew at its slowest pace since 2021, clocking in at 3.5%
- Meanwhile, the Consumer Price Index, or CPI, showed that inflation had grown 3.2%. Both of these numbers show incredible progress in taming an overheated economy which had experienced levels of inflation peaking at 9.1% a year ago July.
- 30-year mortgage rates have fallen a full percentage since rising above 8% on October 19th. Currently, a new home purchase can be financed at 7.09%. An increasing number of pundits and economists are forecasting that the Federal Open Markets Committee is done raising interest rates and may actually begin cutting them as early as May of the coming year.
Together, this data could portend an easing of the national real estate recession which began more than a year and a half ago. While this is good news, we also need to be careful what we wish for. Data released over the weekend highlighted the fact that Rochester came in at Number 3 on the list of municipalities that suffered the greatest loss of inventory post-COVID. In the past four years, the number of homes available for sale in Rochester has declined by a staggering 58.8%! This statistic helps to explain the remarkable number of frenzied bidding wars and the concomitant increase in real estate prices that have become commonplace in our market.
Looking Ahead
It’s doubtful that there is something that demographically distinguishes us from the rest of the country when it comes to real estate. Inevitably, at some point, we’re going to revert to the national norm. When we do, let’s hope that it doesn’t occur all at once- a market reversal in which the number of homes available for sale suddenly outstrips the number of prospective buyers would be devastating. For what it’s worth, here’s my prediction- In 2024, we’ll begin to see an increase in the number of homes available for sale. Meanwhile, mortgage rates will continue to improve, landing in the mid-6% range by June. As a result, buyers will begin to enjoy some relief while sellers, whose equity gains are locked in, will continue to see respectable increases in the value of their homes.
But, then again, such prognostications have, over the past few years, proven to be worthless as the US economy and real estate markets have behaved in a manner that defies both logic and years of scholarly research. For the moment, why not simply take a deep breath and enjoy the next few weeks- the best time of the year!
Whether you’re celebrating Christmas, Hanukkah, Kwanzaa, or simply enjoying the season, Happy Holidays!