Looking into 2024 and rate impacters
Happy 2024!
Every new year is approached with hope and promise for the coming year. Such are the sentiments many in the real estate industry have for 2024. Any optimism in regards to real estate markets is based on mortgage rates continuing their move downward that began in October.
Yes, rates should drop in 2024, but how far? What forces will impact rate movement?
The same forces that always impact mortgage rates, the economy and global geo-politics.
Primarily, the economy. The expectation is the economy will slow down, pulling rates down with it. The Fed has announced it expects to drop its benchmark rate up to three times, anticipating the slowdown.
If consumers do not slow their purchasing of goods and services, supporting higher inflation and tight labor markets, rates will resist downward movement.
International events also impact rates, especially armed conflicts. Ukraine’s war with Russia is approaching two years, Israel’s military action in Gaza to eradicate Hamas will be on-going through the year; with a likely spread to armed conflict with Hezbollah, Iran’s surrogate terror group based in Lebanon. Houthi rebels based in Yemen, also supported by Iran, have already disrupted cargo and tanker ships in the Red Sea with their missile and drone attacks, interrupting shipments of oil and cargo headed to the Suez Canal. Iran’s involvement in these conflicts is increasing tensions between the Shia centric nation and other nations in the Middle East governed by Sunni centric leaders.
China is increasing its aggressiveness towards Taiwan in its historic desire to fold the island-state into the People’s Republic. North Korea has increased its testing of ballistic missiles, and recently its leader, Kim Jong Un has stated his military would annihilate South Korea and the United States if provoked.
These conflicts, if exacerbated, would dramatically disrupt the global economy and put strong downward pressure on interest rates.
Finally, the race to the White begins in ten days when Iowa will hold caucuses across the state to select nominees for both partes, followed by New Hampshire’s primary eight days later on January 23rd. Election years are somewhat notorious for having a lot of movement, up and down, in markets, as consumers and investors try to read the tea-leaves as to what the results of the presidential election in November will be.
Two occurrences in 2024 that should have no impact on markets are that we have a leap year, and the summer Olympics.
Since the fall of 2022, mortgage rates have mostly been over 6.00%, with a significant number of months over 6.5%. What will become the “normal” rate that will shake loose the real estate market inventory? What will be the cause of the market to drop to that rate?
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Opening data for year not positive for rate cuts. This morning we got the monthly job data from the Labor Department. The numbers show that 216,000 jobs were added to the economy in December, the most in 3-months. Higher employment is not unusual in December as many retailers and hospitality employers increase hiring for the season; however, the strong hiring was not due to seasonal workers. The number one hiring sector for the month was government (begging the question from this limited government advocate, why are local, state and federal governments adding this many jobs in December?). The total hiring numbered was a bit tempered by strong reductions in the total number of hirings in October and November. A strong job market in a neutral environment would portend higher rates, in this case the numbers put delaying Fed rate decreases further into 2024 as likely.
Also making the case, was the wage data from the Labor Department. Hourly wages increased 0.4% in December and year over year the increase was 4.1%. These numbers surpass inflation, putting more “real” dollars in workers bank accounts, which can lead to more spending. If the wage increases, in addition to adding to cost of business to employers which can lead to higher prices, increase demand for goods and services, inflation could become stickier on its path downward, or reverse course. Another point of concern for the Fed when calculating when, or if, to lower its benchmark rate.
Rates for Friday January 5, 2024: Our new year starts with a bump in rates from last year (last week), and 0.625% (five-eighths of one percent) higher than the first Friday of 2023.
FIXED RATE MORTGAGES AT COST OF 1.25 POINTS LOCKED FOR 45 DAYS FOR PURCHASE TRANSACTIONS:
30-year conforming 6.625% Up 0.125%
30-year high-balance conforming 7.125% Up 0.125%
Please note that these are base rates and adjustments may be added for condominiums, refinances, credit scores, loan to value, no impound account and period rate is locked. Rates are based on 20% down with 740 FICO score for purchase mortgages.
This is coming to you from Palm Desert, where Leslie and I have spent the week relaxing and relaxing. We have discovered a few new restaurants, to us as some have been here a while, and re-visited a few favorites, and caught up on our reading and streaming movie and show lists.
I hope you too have been able to start the year relaxed and getting ready for a year that will be interesting in many ways.
Have a great week,
Dennis
Past Weekly Rate & Market Updates can be found on my blog page at my website www.DennisCSmith.com/my-blog
