I recently attended a charity gala and purchased, at auction, a bottle of Scarecrow Cabernet. It was an indulgence that I would have never bought off the shelf but, knowing that my donation was going to help a very worthy cause, I set aside prudence, raised my paddle, and prevailed against the competition. A few months later, we gathered with close friends, excited to join the exclusive club of those fortunate enough to have tasted this famed vintage. We carefully removed the bottle, turned the screw and extracted the cork. The time needed to appropriately decant the grapes added to the allure of the moment. We poured the wine into Riedel glasses- purchased specifically for this occasion- and admired the deep garnet color and beautiful nose- both promising something special. I placed the glass to my lips and….
Meh.
I had waited all of this time expecting something dramatic only to find that the wine was good but not the transcendent experience we had expected.
A Disappointing Start…
Well, on the 18th of September, two and a half years after Jerome Powell and the Federal Open Market Committee first raised the Federal Funds Rate, they declared victory over inflation and heralded the arrival of a cycle of monetary easing. The Fed Chair kicked things off with the announcement of an unexpected fifty basis point drop in the rate. While the news was widely predicted, it still caused real estate brokers and agents, mortgage originators, and others to celebrate the end of the real estate recession that has plagued the industry. The industry-wide slowdown took its toll in unexpected ways. Homebuyers, who had initially rushed into the market during the pandemic, have recently become paralyzed by both high mortgage rates and property values that have increased 60% in the past five years. For agents and brokers, the market slowdown felt like a long winter, with clients repeatedly losing out on bidding wars and client activity diminishing.
Sensing an end to what has been described as one of the worst real estate markets on record, calendars were cleared, pencils sharpened, and cell phones charged- all in anticipation of homebuyers resuming their search. Then…
Nothing.
Like my experience with the bottle of Scarecrow, I had been anticipating something dramatic only to find that the buyers we had expected to re-ignite their search chose, instead, to remain idle. What was going on?
Traditionally, both September and October are great months for real estate sales. Those buyers who did not prevail earlier in the year usually begin their search anew, hoping to succeed in finding a new home before everyone’s attention turns to cranberries and stuffing. This year, buyer activity seems unusually lethargic. Perhaps the uncertainty of the Presidential Election is causing hesitancy. Or, it could be the fatigue that clients have described after experiencing several months of disappointing results. Another possibility has to do with mortgage rates.
What Will This Mean?
First, a quick review of where we’ve been. Although the Fed doesn’t directly control mortgage rates, their decisions influence them. The 30-year mortgage, which was pegged at 7.3% at the beginning of summer, dropped to 6.11% the week before the meeting of the FOMC, then saw a slight uptick in the days after. Despite such a significant drop, it seems that buyers are hoping for an even larger decrease before stepping back into the arena. Thankfully, there are two more opportunities for the Fed to address the desires of would-be homebuyers. The FOMC will be meeting in November and again in December and it is anticipated that both meetings will result in further erosion of rates. The amount of each reduction will depend on the economic data that is reported between now and then and it seems likely that mortgages will fall to 6% before the end of 2024. Economists and other pundits are forecasting rates in the range of 5.5% to 5.75% soon after Guy Lombardo sets down his baton on December 31st.
Will this compel buyers to resume their hunt? The short answer is that it seems all but inevitable. Veros Real Estate Solutions predicts that Rochester will be a top city in the country when it comes to the number of new homes coming on the market for sale in 2025. It’s hard to imagine that well-rested buyers won’t be compelled to enjoy greater inventory, lower mortgage rates, and greater affordability. Such optimistic forecasts leave me certain that, at the conclusion of next year’s spring market, I won’t be left with another ‘meh’ moment. Instead, I’ll be ready with a bottle of champagne to toast what’s sure to have been a more vibrant and successful real estate market.
If you’d like to participate in this new era of real estate activity, feel free to give me a call at Elysian Homes- 330-8750. I’d love to talk!