Mortgage Rates Could Fall Below 6% by End of 2024 Spurring a Double-Digit Housing Market Rebound
Amid weakening inflation and market expectations that the Fed is pretty much done raising rates, the 30-year fixed rate mortgage on conforming loans fell to 7.29% in the week of November 22 from 7.44% the prior week.
Mortgage rates are likely to keep trending down in 2024, spurring a double-digit recovery in housing sales.
Historically, the average spread between the 30-year rate and inflation was about 2% in 2018-2019. That has jumped to about 4%. With no inflationary pressures, the 30-year mortgage rate could hit below 6%, at about 5.75%, by the end of 2024, with inflation continuing to fall to the 2.5%- 2.75% range.
I don’t see any big inflationary pressures on the horizon. Nationally, the demand and supply of labor are coming into better balance, which means less upward pressure on wage growth.
The economy is still cranking out jobs, but October’s job gains of 150,000 are below the 250,000 average monthly gains during January-September 2023. Businesses are continuing to hire, but job openings have fallen below 10 million since May 2023, to 9.5 million in September, with 1.5 jobs for every job seeker, down from 2 open jobs/job seeker in December 2022.
Consumer spending is up modestly, easing the effect of demand on inflation, as consumers face a higher cost on credit card debt and with the pandemic savings drawn down while inflation has reduced purchasing power. Nationally, retail sales rose 1.6% in October, lower than the inflation rate of 3.2%.
Falling rent growth is also creating a downward pressure on inflation, with rent/cost of shelter accounting for a third of the consumer budget. In Miami-Dade County, the multifamily asking rent was down 5% year-over-year while the asking rent on single-family rentals was flat, based on an analysis of October’s rental listings on RentalBeast and the MIAMI MLS.[1]
More Pending Sales and New Listings as Mortgage Rates Decline
The housing market is already starting to pick up steam on both the demand side and the supply side, as mortgage rates have declined.
More homeowners listed their homes in October across the South Florida counties of Miami-Dade, Broward, Palm Beach, Martin, and St. Lucie in October 2023 compared to the prior year. Rising mortgage rates had caused a pullback in new listings in 2022 through June of 2023, but in the second half of the year, South Florida’s housing market saw more new listings, even as mortgage rates continue to increase towards nearly 8% through October.
In Miami-Dade, 3,512 single-family and condo/townhomes were listed for sale in October, up 10% year-over-year. Broward had the highest level of new listings, at 3,592, up 16%. In Palm Beach, 3,369 new listings hit the market, 16%. However, Martin County had the highest percentage increase, up 35%, with 373 new listings. In St. Lucie, 824 homes were listed, up 15%.
With more new listings, the Miami-Dade County is nearing balanced market conditions, with 5.3 month’s of supply of single-family homes and condominium/townhomes for sale, mainly from the supply of condominiums/townhomes which has reached a balanced market, at 6.3 month’s supply. Months’ supply continues to improve but remains below 6 months in Broward (4.0), Palm Beach (3.9), Martin (3.7), and St. Lucie (3.6).
On the demand side, pending sales of single-family homes rose in Miami-Dade (13%), Vroward (6%), Palm Beach (6%), and Martin County (11%).
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2023 Pent-up Demand to Spur 10% Housing Market Rebound in 2024
Rising mortgage rates have gravely hurt affordability this year, and that pent-up demand will show up next year in a housing market rebound, likely at a double-digit pace, mortgage rates continue to fall. Housing demand could pick by about 10%.
At the current mortgage rate (7.6% on average in October), the mortgage payment on a typical single-family home ($618,217) in Miami-Dade County at 10% downpayment was $3,940/month.
If mortgage rates fall to 5.7% by year-end and home prices appreciate by 5%, the mortgage payment falls to $3,390, or savings of $550/month. Even if home prices increase by 10%, the mortgage payment falls to $3,550, or a savings of $390/month.
Those savings amount to 10% to 14% of the current mortgage payment which can potentially increase the housing demand pool by 8,500 to 11,500 households among renter households earning $150,000 or more in Miami-Dade, Broward, Palm Beach, Martin, and St. Lucie. According to the US Census Bureau’s 2022 American Community Survey, there are 82,524 renter household with incomes over $150,000.
[1] South Florida Single-family Rental Asking Rents Outpace Multifamily Rent Growth in October 2023 – MIAMI REALTORS®
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