Playing Chicken with the Market in 2024

Hey, have you heard the news? For years now, there’s been no shortage of pronouncements that mortgage rates will be coming down. Everyone seemed to have it in their heads that we’d be seeing rates back in the 5’s any month now.

Yet recent discussions about the Federal Reserve’s anticipated rate cuts have shifted significantly. According to the Wall Street Journal, the latest inflation data suggest two scenarios: one where the Fed’s (long-stated) prediction of gradually decreasing inflation holds, potentially leading to slower and fewer rate cuts. The other scenario suggests inflation might stabilize around 3%, likely eliminating the impetus for rate cuts if the economy doesn’t slow significantly.

This marks a significant departure from the earlier expectation of three rate cuts this year. However, a sudden drop in the Consumer Price Index (inflation) could rapidly alter this outlook. Yet, in actual fact, inflation is back on the rise to some degree, so expectations of such a drop seem to be little more than wishful thinking at this point.

And let’s not forget the other reason that mortgage rates remain high: the economy appears to be overall fairly healthy. Job creation remains strong, with 303,000 jobs added in March, the 39th straight month of job growth. Wages have grown year over year, outpacing inflation by around 1.5%. This strong economy keeps the demand for money steady while also pushing consumer prices up.

If you ask me, it all adds up to this: mortgage rates will not be dropping appreciably any time soon. They will continue to fluctuate, as they have all year long, within a narrow band.

Many would-be sellers (and buyers) have been listening to the media which have been saying, in chorus, for months (years now, actually) that rates will be coming down significantly – which would increase affordability, buying power, and, ultimately, home prices.

I think it’s clear now that this simply isn’t in the cards. If you’re planning to buy or sell this year and want to delay your purchase or sale to coincide with appreciably lower mortgage rates…I think you’ll need to change your plans.

In point of fact, the upward trend in interest rates has been consistent since the beginning of the year, further tamping down earlier hopes for a decrease. And remember that historically, rates have been quick to increase but very slow to come back down. Recall the 1990s started with a 30 year fixed-rate mortgage at 9.83%; by the end of the decade, it had dropped to only 8.06%.

And speaking of affordability, another recent Wall Street Journal article highlighted additional challenges in housing affordability, not only for prospective buyers but also for current homeowners. Some areas, especially those prone to natural disasters (can you say wildfire?), have experienced sharp increases in insurance costs. The soaring costs of home maintenance, utilities, insurance, and repairs add up, making the housing market increasingly accessible only to wealthier buyers – and increasingly costly for long-time homeowners who are hanging on to their homes, waiting for an imagined “better time to sell.”

But what if this is as good as it gets? The past couple of years have brought a drought of homes for sale. This low inventory is the defining characteristic of our housing market today. It is exacerbated at least to some extent by owners who really want to sell but are holding out for even higher prices they feel are coming, once mortgage rates finally come down.

At some point, the dam will break loose, or at least spring a leak. More inventory will come, some day. And if that day comes before the long-awaited drop in mortgage rates does, selling your home at that time will look a lot different than it does today. Today, the Bay Area real estate market enjoys low seller competition, quick sales, multiple offers, and many homes selling well over asking price. All of this could change pretty quickly, once significant listing inventory makes its inevitable retu
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Are you tired of playing chicken with the market? Why wait for a better time to sell, when the reality is, there’s no time like the present? Feel free to contact me any time. I’d love to chat about how I can help you get out while the getting is good, and make your next move the best one yet.