As we discussed in our last post, 2023 was a strange real estate market characterized primarily by the effects of rapidly rising interest rates. Across the foothills market, it was both more difficult to buy and more difficult to sell a house than it has been in decades and the 3rd and 4th quarters of the year saw a dramatic slowdown in sales and new listings. Will things be different in 2024? We certainly think so.
Rates are finally starting to come down and look attractive to people who have been in the market or thinking about buying for the last year. While rates may not look good yet by pandemic-era standards, buyers have short memories. Take a look at the following chart – mortgage rates for the last 2 years:
Someone who’s only been looking to buy or thinking about it for the last year has only the above as a reference. For that matter, the message that the interest rates we saw during the pandemic are never coming back is starting to sink in. Most of the mortgage folks we talk to see rates in the low 6s by summer and maybe at 6 by the end of the year, then settling in for the next few years in the fives. Will they get lower? Maybe, but I’d be surprised if didn’t all live in a world of 4.5 to 5.5% mortgages for the foreseeable future. Moreover, lenders are all starting to offer buy and refi programs, where they will either float your rate down for the next year and/or refinance you for free within two years. Add that to the possibility of getting credits from sellers to buy their rate down, and smart buyers won’t be shopping as if they are getting a 6.5% mortgage, but a 5% one. Smart buyers are realizing this now, but many haven’t gotten the message yet. They will!
Once buyers start to realize rates aren’t that bad and that there isn’t any point in waiting, they are going to come back to the market in force. My prediction is that by summer 2024, we are going to be back in a full-on seller’s market with multiple offers and over-asking price bidding wars for good homes being the norm.
Then, sellers will also rise to meet them. Once sellers see homes moving quickly and realize they’re in control again, they’ll consider listing – making the move they’ve wanted to make for the last year but have been waiting on. The reasons people have for selling can be delayed, but are rarely eliminated – divorce, death, distress, empty nest. Sellers will see the market improve, and finally stop waiting.
As a result, we will have still low, but better, inventory. Many of the reasons people used to move don’t have the same frequency as they used to, for example, being relocated for work. And many of the people who bought during the pandemic are here to stay, having bought their forever home or at least a home they intend on staying in for years.
What do you get when you mix inventory and high buyer demand? Increasing prices! We’ve already worked out the pandemic “bump” that the foothills market gets from 2020 to 2022 and prices are right about where they would have been had growth continued on its historical trajectory. Imagine a long-term trend line on the following chart – the Case-Schiller Denver home price index for the last 10 years:
We’re right about where we should be. Affordability is still an issue, but it always will be in our market where building is expensive, water is limited, demand is high, and building codes and zoning regulations make it hard to build.
So, what’s going to happen in 2024? I don’t have a crystal ball and can’t say for sure. But the data are telling me that buyer and seller activity is going to increase, our market is going to improve, become more seller-friendly, and prices are going to continue to rise. Anecdotally, this is already happening. Our team and most of the real estate agents we’re talking to have been busy for the first three weeks of the year after a very slow Q4. So, if you’re thinking about buying, get out there now before everyone else does! And, if you’re thinking about selling, contact us now so we can get ready to put your house on the market as soon as we see buyer demand pop.