The Full Measure with Kevin Hecht: Economic Recap January 2024

The Full Measure with Kevin Hecht: Economic Recap January 2024


Welcome to the latest installment of The Full Measure with Kevin Hecht—your destination for the most current economic insights and analyses. Catered to real estate appraisers, agents, and other professionals, this monthly blog series helps you navigate the ever-evolving economic environment. Uncover this month’s economic trends and insights—written from an appraiser’s standpoint—in the following economic recap for January 2024.

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Economic recap January 2024

Housing market overview

As we turn the page to a new year, the housing sector shows initial signs of stabilization after a tumultuous 2023. Based on recent data from the National Association of Realtors, existing home sales plummeted 19% last year to reach their slowest pace since 1995. The median single-family sale price simultaneously vaulted to a new record high of $389,800 as of December. However, gently moderating inflation and declining mortgage rates could finally provide overdue relief. According to NAR’s latest monthly REALTORS® Confidence Index, the typical unsold listing stayed on the market for 29 days in December, up four days from 25 days in November. Over 56% of homes sold in December were on the market for less than 30 days. First-time buyers represented 29% of transactions, down from 31% in November. Investor and second home buyers made up 16% of purchases, while distressed sales clocked in at just 2% – all largely unchanged from the prior month.

Regional home sales activity

Existing home sales activity exhibited diverging patterns across the four major U.S. regions in December. In the Northeast, transactions remained flat from November at a seasonally adjusted annual rate of 470,000 units. But this still represented a sizable 9.6% decrease from December 2021 sales activity for the region. The median selling price in the Northeast came in at $428,100, marking a 9.4% increase year-over-year.

The Midwest witnessed another pullback in purchases in December, with existing home sales volume retracting 4.3% from November’s tally to reach 900,000 units. This translated to a more pronounced 10.9% decline versus Midwestern activity levels last December. However, median prices continued appreciating at a solid 5.9% yearly clip, ending December at $275,600.

In the South, existing home sales also slid from the prior month, dropping 2.8% to a 1.72 million-unit annual pace for December. The region recorded a milder 4.4% transactions slump below last year’s levels. Boosted by stronger high-end demand, the regional median sales price expanded 3.8% from last December to reach $352,100.

Out West, the December existing sales data proved slightly more promising, with a bounce up to 690,000 transactions following a 7.8% monthly gain. Yet compared to last year, activity across the region remained depressed at 1.4% under 2021 levels. However, Accelerating price appreciation persisted, with Western markets seeing a 4.8% year-over-year median price lift to $582,000.

Broader economic overview

On the broader economic front, the U.S. showed impressive resilience in 2023 despite the highest inflation in 40 years and intense Fed tightening. GDP expanded a stronger-than-expected 2.5% in 2023 as consumer spending remained resilient through the headwinds. The job market also defied concerns about a major slowdown, generating over 2.7 million new positions during the year. But there is no doubt that the housing sector bore the full brunt of the economic pressures. Persistently lean resale inventory and still-robust demand combined to drive prices up even as sales volumes plunged.

In recent months, though, the inflation picture has continued to gradually ease from its 40-year peak of 9.1% last June. As of December’s data, the Fed’s favored PCE metric has drifted down to show prices rising just 3.2% year-over-year. Long-term bond yields and 30-year fixed mortgage rates have likewise pulled back roughly one percentage point after hitting their highest points in October, closing the year around 6%. In perhaps the most hopeful sign for housing, NAR’s Pending Home Sales Index also finally ticked slightly higher in December for the first time following six consecutive months of contraction.

Predictions for the remainder of 2024

If these promising trends maintain momentum into early 2024, forecasters widely predict that the Federal Reserve could begin cutting its benchmark interest rates within 6-12 months. This would likely help drag fixed mortgage rates incrementally back down closer to the 5% range over the course of the year. While extremely limited resale inventory will continue severely constraining sales growth in the near term, this return of lower financing costs has the potential to help lure some reluctant homebuyers back into the market.

There are also small indications that housing supply could be set for further improvement. For instance, December data showed a slight uptick in new listings coming online as seller confidence stabilizes. While still far below historical norms, total housing inventory posted a 14.7% year-over-year expansion during 2023 per NAR. So, if additional mortgage relief enables more buyers to return to the mix in 2024, overall market conditions have a chance to gradually regain balance.

What does this mean for appraisers?

For residential appraisers, it remains imperative to remember that even as the market shows initial signs of correcting, inventory still sits at extremely supply-constrained levels from a historical context. At the same time, affordability challenges will persist at higher mortgage rate levels. As such, still-elevated sales volatility is likely in the months ahead, given the uncertainty still swirling within the economy.

Appraisers must tread carefully when utilizing 2023 comparable sale data in valuation modeling and consider localized market trends. Additionally, it becomes critical to dig deeper into granular inventory metrics beyond total listing tallies. Carefully analyzing the story behind the housing data numbers will remain crucial throughout 2024 as the market seeks to find solid footing after years of wild pandemic swings.

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Written by Kevin Hecht, MNAA, CDEI, ChE Chartered Economist®, AQB Certified USPAP Instructor. Kevin has been a real estate appraiser since 1987, and currently holds a Certified Residential appraiser license in Missouri. As a McKissock Learning instructor, Kevin specializes in market analysis, USPAP, and real estate economics. In addition to being an appraiser, Kevin is an Adjunct Professor of Economics at Maryville University.