Norada Real Estate Investments

Will It Be a Pricier Housing Market in Spring 2024?

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The spring housing market of 2024 is anticipated to be more costly for investors due to the U.S. Federal Reserve's stance on interest rates, which has triggered reverberations throughout the real estate sector. Understanding the repercussions of the Fed's decisions is paramount.

Recently, the Fed indicated its plan to maintain interest rates at current levels for an extended period, citing persistent inflation. This move could significantly impact mortgage rates, often mirroring the trajectory of Fed rates.

Danielle Hale, Chief Economist at Realtor.com, predicts, “We'll need greater confidence that inflation is moving sustainably towards 2% before [it will be] appropriate to ease policy.” Consequently, mortgage rates might rise to a daunting 8%.

Jerome Powell, the Fed Chair, echoed similar sentiments, stating, “The recent data have clearly not given us greater confidence and instead indicate that it's likely to take longer than expected to achieve that confidence.” This resolute stance suggests a reduced likelihood of rate cuts in the near term.

Interplay Between Fed Rates and Housing Market

While Fed rates and mortgage rates function independently, they often move in sync. Changes in Fed rates tend to influence mortgage rates, with adjustments reflecting overall market conditions.

As Hale elucidates, “A lot of what happens will depend on how the next couple inflation readings come in. If inflation goes down, mortgage rates will start to ease back down. But if it gets worse, 8% is definitely possible for mortgage rates.”

Current Market Trends and Challenges

The current real estate landscape contrasts starkly with the optimism felt in mid-December when mortgage rates fell to an average of 6.62%. However, rates have since surged to an average of 7.5% as of Tuesday, according to Mortgage News Daily.

Hale remains optimistic that inflation will eventually moderate, leading to a reduction in mortgage rates, offering much-needed relief for both buyers and sellers. However, she cautions that the path to lower rates may be gradual and protracted.

Moreover, the challenges in the housing market extend beyond rising mortgage rates. Tight inventory levels exacerbate affordability issues for prospective buyers, with active listings down 43.9% compared to the same period in 2020, according to Realtor.com data.

Strategic Approaches for Investors

Amidst this challenging landscape, real estate investors must exercise caution and strategic thinking. Diversification across various property types and locations could prove invaluable in mitigating risk and capitalizing on emerging opportunities.

Additionally, recalibrating expectations and adjusting strategies may be necessary. Focusing on rental properties or exploring alternative investment vehicles, such as real estate investment trusts (REITs), could provide a hedge against the challenges of the housing market.

Furthermore, it's essential for investors to closely monitor market trends, economic indicators, and policy changes. Seeking the guidance of experienced professionals can also be prudent in making informed decisions amidst market fluctuations.

Navigating Uncertainty with Resilience

While the road ahead may be paved with challenges, the real estate market has historically proven resilient. Those who can weather the storm and remain steadfast in their pursuit of sound investment strategies are likely to emerge victorious in the long run.

As the adage goes, “The tide is always highest before it turns,” and those who position themselves wisely may reap the rewards when the market inevitably rebounds.

Absorption Rate and Months of Inventory in Real Estate

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Absorption rates and months of inventory in real estate. What are they, and why are they significant? This information is useful since it represents the liquidity of a market. As a real estate investor, you can help maximize your profits by knowing the liquidity of a given real estate market. By knowing the liquidity of a market, you will better understand that market and therefore be able to take advantage of the various buying strategies afforded by it.

One of the measurements frequently used to gauge the liquidity of a given market is the absorption rate. This is basically the rate at which a specific segment of a real estate market sells in a given time frame. These segments are usually categorized by price range but may also be categorized by property type. The absorption rate can assist sellers to determine the optimal price for a property. The absorption rate is useful information for buyers as well because it indicates the extent to which a seller may be willing to lower their asking price or make other concessions.

Absorption Rate Formula

The easiest way to understand absorption is to put it in more tangible terms and measure it in “Months of Inventory”. In other words, we take the number of active listings and divide it by the total number of sold transactions within the same month to give us the months of inventory.

To calculate the months of inventory for any given market:

  • Find the total number of active listings on the market last month.
  • Find the total number of sold transactions for last month.
  • Divide the number of active listings by the number of sales to determine the number of months of inventory remaining.

Supply-DemandAs a general rule, 5 to 6 months of inventory is considered to be a normal or balanced market. Over 6 months of inventory and we have a buyer’s market. If it is less than 5 months and we have a seller’s market. The smaller the available inventory, the tighter the market is. Keep in mind that these are simply guidelines and will differ from market to market.

For example, let’s say there were 8,000 active listings last month and 1,000 closed transactions. That leaves us 8 months of inventory remaining on the market and also tells us that we are in a buyer’s market.

If you are in the market looking to buy, calculating the months of inventory can give you an indication of how negotiable sellers might be. A large number, say 12 months or more, would mean that sellers have a high level of competition and will probably be more flexible on their sales price and terms.

On the other hand, if you are a seller trying to sell your property, the months of inventory will give you an indication of the level of competition you will face. Selling in a buyer’s market will require you to put some serious thought into your pricing strategy and any incentives you may want to offer.

National Economic Outlook (September 2013)

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The rate of annual job growth in August, 1.7 percent, was basically the same as in previous months. We had better get used to the idea that this is the new normal, because there probably won't be much help from the lagging government and construction sectors.

Budget difficulties will prevent any meaningful increase in government spending, even though local and state revenues are now in better shape. The recession revealed the extent of unfunded pension liabilities for public employees, which will absorb any extra dollars.

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National Economic Outlook (August 2013)

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The pace of job growth in July was unchanged from the 1.7 percent annual rate of previous months, but the details suggest an economy that will do modestly better for the rest of the year. Most importantly, jobs in business services were up 3.5 percent from last year.

Business services is one of the largest sectors of the economy, on a par with health care and government, and bigger than retail or manufacturing. Earlier this year it was growing at a 3 percent rate, in the last few months around 3.5 percent; it seems only a small increase but it means that businesses are expanding again.

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National Economic Outlook (June 2013)

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The economic recession only lasted a year, but there wasn't a recovery for homes because prices had climbed much too high and builders had built way too many of them. Prices had to fall, not just back to a “normal” level, but to an even lower level so that the large inventory of excess homes could be moved – a sort of clearance sale. We're not yet done with that sale – see the large number of mortgages still delinquent – but enough has been cleared out so that prices can drift up to a more normal level.

 

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Zombie Foreclosures

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Hundreds of thousands of homes in the US are now labeled as “zombie” foreclosures. That's when the owner of a foreclosed home leaves only to find out years later that he or she still legally owns the home and is on the hook for property taxes and other fees. Such cases occur in more than a third of foreclosures, industry figures show.

Although it's hard to quantify exactly how many homes fall into the category, real estate information company RealtyTrac says that, in the first three months of the year, roughly 302,000 homes qualified as “zombie” properties because the owner has moved out, but the bank has not yet taken possession.

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Real Estate Market Trends for 2013

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The first quarter of 2013 is almost over and so far, a few trends have emerged in real estate.  These trends are not set in stone, nor can we be sure that they will continue on the same trajectories throughout the rest of the year.  As with any other major part of the economy, much of real estate depends on external factors such as employment, interest rates, and general economic conditions.

With that being said, the first quarter of 2013 has established a few trends in the national market that extend into regional and local markets and could point to broader movement throughout the rest of the year.

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The U.S. Real Estate Market is Back! [infographic]

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As we all know, America's housing market has been in a slump for many years.  Years of negative news made home buyers and real estate investors nervous about the future of the U.S. housing market.  However, the following infographic should bring optimism back to most people.

This infographic reports the opinions of real estate professionals, and their predictions look extremely promising!  Most feel positive about the direction the economy and the real estate market is headed.  If the trend continues, which it is expected to do, then this would be a great time to be investing in real estate.

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Real Estate Investment Outlook for 2013

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For a good number of real estate professionals, 2012 wasn't a great year. We were still on a downward spiral towards the bottom of the real estate market. This wasn't exciting news for real estate investors looking to make profitable deals investing in real estate. But as we move deeper into 2013, it's becoming abundantly clear that the tide is turning.

In previous years, buyers were getting used to having the upper hand. The market was like a poker game with the buyer being in possession of all the chips. Sellers are now in a position to reclaim not only the chips, but the pot as well. We are moving into a seller's market where the seller, not the buyer, will have the unfair advantage. Opportunity is knocking and it's been a long time since investors were able to capitalize on current and future market conditions.

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National Economic Outlook (March 2013)

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The budget shenanigans in Washington so far haven't had an effect on the recovery, but an extended period of lower government spending and job cuts will quickly lead to economic stagnation.

The economy is a self-reinforcing mechanism, a small dip in growth will be followed by further declines, even if the first dip was meant to be temporary. With jobs growing at a very modest rate, it won't take much to bring growth to a halt.

Aside from the very real possibility of a government-induced slowdown, the economy is doing well – in the modern sense that it's growing modestly. The number of jobs in February was 1.5 percent higher than last year, a small improvement over recent months, and unemployment fell to 7.7 percent. As usual, the heavy lifting was done by the health care sector – jobs up 2.1 percent – and business services, where jobs increased 2.8 percent. Government jobs were essentially flat, and retail jobs were up 1.8 percent.

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