Predictions: How Will 2024 End For The Housing Market?
By ERIN FLYNN JAY
As mortgage rates drop, some industry leaders are hopeful that home sales will pick up moving into the fourth quarter, but it looks like 2024 won’t meet expectations.
Although applications are ticking up, refinances may be hitting their ceiling, and according to the August economic forecast from the Mortgage Bankers Association, origination volume for the year will be just below $1.8 trillion.
Last year, they predicted origination volume would be $1.95 trillion in 2024.
A “higher for longer” path for the federal funds rate taken by the Federal Reserve is to blame, as analysts believed there would be rate cuts starting earlier in the year. The first one may happen at the Federal Open Market Committee meeting this month.
Rick Sharga, President & CEO of CJ Patrick Company, said 2024 will end with a little more momentum than it started with — but the overall lending volume and the number of loans issued will both be relatively weak.
“The hope as the calendar flips from 2024 to 2025 is that mortgage rates will decline far enough to stimulate more homebuying, and the number of purchase loans — along with the dollar volume those loans represent,” said Sharga.
When the Feds start cutting rates, it will impact mortgage loans, particularly if there is a return to the typical spread between yields on 10-year U.S. Treasuries and rates on 30-year, fixed-rate mortgages, he said.
Normally, this spread is between 1.5 to 2 percentage points but has been closer to 3 points over the past two years.
“A reversion to the mean would effectively drop mortgage rates down to somewhere between 5.3% and 5.8% — almost a full point lower than rates are today, and a rate low enough that it might stimulate more home selling as well as more home buying,” said Sharga.
Changes in real estate agent compensation could also have a significant impact on the mortgage industry.
“Buyer’s agents have traditionally been a major source of leads for loan officers and mortgage brokers, but the new compensation rules — which make the buyer responsible for paying their agent, rather than the compensation coming out of the sales proceeds — may result in a large number of buyers opting to not work with an agent at all,” said Sharga.
This means loan officers may have to focus more on attracting new clients and rely less on leads from realtors. Sharga said mortgage professionals are already forced to compete for business in a low-volume lending environment.
“Until rates drop significantly — probably in the low 5% range — there’s unlikely to be very much refinance activity,” he said. “And while home sales might tick up a little bit as mortgage rates begin to decrease, there’s simply not enough purchase loan activity to support all the mortgage professionals in the industry. Consolidation — bigger lenders buying smaller ones, and some lenders just shutting their doors — is also eliminating jobs, which is obviously an issue for anyone making their living by making loans.”
Glenn Phillips, CEO and Lead Economic Analyst at Lake Homes Realty, expects the end of 2024 to have a modest increase in refinances and possibly an increase in mortgages for home purchases.
“Rates will have a slight drop but as more drops are not yet anticipated, refinances will be popular by anyone with a maturing ARM or looking to extract capital out of the homes,” said Phillips. “It can take a few months for home purchases to be influenced by rate drops, so that impact will likely not appear until 2025. The election and then the holiday season will slow for home buying. It picks back up after the first of the year every year.”
Phillips described the residential real estate market as being in “an unofficial recession.” To get it back on track, rates will need to drop enough to lure homeowners away from the financing they took advantage of during the pandemic.
Phillips agrees with Sharga that real estate agent compensation changes will also be a factor moving forward.
“This is having a big impact in how buyers pay their real estate agent,” said Phillips.
If a seller is not offering compensation for a buyer’s agent, “One approach is for the buyer and seller to agree to increase the home price and then the seller offers money back to the buyer to pay the buyer’s agent.”
Lenders will be asked to approve these financing arrangements.
“Clearly appraisals will have to be met, and historically the real estate broker commissions have been embedded in the purchase price (and mortgage amount),” said Phillips. “But this is a new twist.”
The biggest challenge industry professionals face is one that is likely to persist into 2025: a lack of inventory that average Americans can afford.
“There has been a steady increase in inventory for sale but primarily with aspirational prices,” said Phillips. “These sellers, and future sellers, will become more realistic, creating more transactions. This issue will resolve itself but it won’t be quick.”
Economists at the MBA project origination volume in 2025 will be around $2 trillion.