In this installment of The Full Measure with Kevin Hecht, uncover March 2024 housing market insights, plus key takeaways for residential appraisers.
February 2024 marked a dynamic period in the housing market, presenting opportunities and challenges for real estate appraisers. With shifts in existing and pending home sales, new home sales, construction activity, and economic indicators such as inflation and mortgage rates, appraisers are navigating a complex landscape. This post synthesizes the latest data to offer a comprehensive view of the market’s current state in March 2024.
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Federal Reserve meeting in March
The Federal Reserve’s decision to keep the short-term policy rate steady at a range of 5.25% to 5.5% during its March 2024 meeting is pivotal for the housing market. Maintaining rates steady since July 2023, the Fed’s stance is a continuation of a restrictive policy aimed at curbing inflation while supporting economic resilience.
The updated Summary of Economic Projections indicates an expectation of slowing economic growth in 2024, with 75 basis points of easing anticipated by year-end. Despite this, fewer rate cuts are expected in 2025 and 2026, suggesting a “higher for longer” approach to interest rates. This outlook reflects the Fed’s response to a moderately improved economic growth forecast and a commitment to achieving a 2% inflation target.
The housing market, particularly mortgage rates, continues to be influenced by these policies and economic indicators. For buyers and sellers, this means navigating a market where affordability improvements may unfold slowly, and creative financing options could play a crucial role.
March 2024 housing market insights
Existing homes sales
February witnessed a remarkable 9.5% month-over-month increase in existing home sales, reaching a pace of 4.38 million. Despite this surge, sales were still 3.3% below the previous year’s pace, with gains observed in all regions except the Northeast. This upturn is attributed to a dip in mortgage rates from late October through mid-January, which eased buying costs and encouraged prospective homebuyers.
Pending home sales
Pending home sales, a precursor to future existing home sales, rose 1.6% in February. However, this was still 7.0% lower compared to the previous year. The market showed signs of life with a 9.5% monthly surge in existing home sales and a 14.8% annual increase in overall active inventory, offering more affordable options to buyers despite persistently elevated mortgage rates.
New home sales
New home sales in February 2024 remained virtually unchanged from January, decreasing by a marginal 0.3% to a rate of 662,000 new home sales, which is 5.9% higher year-over-year. Regional disparities were evident, with sales increasing in the South and West but declining in the Midwest and Northeast. The new home market remained appealing amid low existing home inventory, although higher mortgage rates in February led some buyers to pause their homebuying plans.
New construction
February 2024 saw a 10.7% month-over-month increase in new residential construction activity, with annual housing starts rising 5.9% year-over-year to 1,518,000. This surge was supported by improved builder sentiment and a significant pickup in single- and multi-family starts. Housing permit activity also increased, suggesting a continued focus on meeting the demand for new homes despite the challenges posed by high mortgage rates and inflation concerns.
Inflation news
The Consumer Price Index (CPI) rose by 0.4% in February, pushing the annual inflation rate to 3.2%. Energy and shelter costs contributed significantly to this increase. Despite a slight easing in shelter inflation, it continued to drive higher costs, emphasizing the ongoing challenge of addressing the housing shortage to mitigate inflationary pressures.
Mortgage rates
Mortgage rates exhibited a minor retreat to 6.79%, remaining within the 6.6% to 7% range observed since December. The high policy rate environment maintained by the Federal Reserve has kept borrowing costs elevated, affecting the affordability and accessibility of home financing. The market outlook suggests a cautious optimism, with potential relief for homebuyers through increased listings and possibly moderated prices.
Considerations for residential real estate appraisers
The February 2024 housing market showcased a series of nuanced shifts reflective of broader economic movements and policy decisions. The stabilization of mortgage rates and a dynamic landscape of new and existing home sales offer a complex backdrop for residential real estate appraisers. The Federal Reserve’s March 2024 decision to maintain interest rates points towards a cautious approach to economic growth and inflation, with significant implications for housing affordability and market dynamics.
As appraisers navigate this multifaceted environment, several key considerations should guide their assessments:
- Mortgage Rate Influence: The current stability within the 6.6% to 7% range for mortgage rates and anticipated fluctuations will significantly impact buyer affordability and demand. Appraisers should closely monitor these trends.
- Regional Variability: The disparities in home sales and construction activity across different regions underscore the importance of localized market knowledge. Appraisers must consider regional economic conditions, inventory levels, and buyer sentiment when evaluating properties.
- Construction and Inventory Trends: With new construction activity surging and a notable increase in permits, there is an impending shift in market supply. Appraisers should consider the potential impact, especially in markets with significant new construction.
- Economic Indicators: The broader economic context, including inflation rates and Federal Reserve policies, plays a critical role in shaping the housing market landscape. Appraisers should stay informed on economic projections and policy decisions, as these factors influence market confidence and investment behaviors.
- Technological and Analytical Tools: Embracing advanced appraisal software and analytical tools can enhance the accuracy of market analysis, especially in a rapidly changing environment. Utilizing comprehensive datasets and trend analysis can provide deeper insights into future market movements.
- Professional Development: Continuous education on market trends, appraisal techniques, and economic factors is crucial. Engaging with professional associations and staying updated with the latest research and market analyses will bolster an appraiser’s ability to navigate market complexities.
In summary, the current housing market presents challenges and opportunities for residential real estate appraisers. Appraisers can provide more accurate and insightful property valuations by focusing on a detailed, region-specific analysis and considering broader economic indicators. Staying agile, informed, and connected with the professional community will be key to navigating the evolving landscape of real estate appraisal in 2024.
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