In the last 2 months of 2023, the average, weekly, 30-year mortgage interest rate dropped from 7.79% to 6.61%.
The 2023 market was characterized by high interest rates, financial market uncertainty, surprisingly strong demand (considering first two issues), and an extremely low supply of new listings – which maintained upward pressure on prices, even as housing affordability dropped. Purchase activity was repressed due to interest rates and the inadequate supply of homes for sale, while for prospective sellers, the motivation to move was reduced by the mortgage lock-in effect.
With interest rates falling and economic conditions rebounding – which should further boost buyer demand in 2024 – the big question is how much do rates need to fall for homeowners to start selling their homes in normal numbers again?
Spring is going to be our hottest selling season, meaning that prices are going to be higher this spring than they are the rest of the year. This is true nearly every spring in San Francisco. But this year, I think it’s going to be more true than ever as we’re coming off that interest rate drop combined with the stock market also doing really well.
Inventory is going to continue to be sparse. I expect it to be higher than last year, but not that high. The sellers we’ve seen selling in the last 12 to 18 months have been selling primarily due to death, divorce, and job changes. What we’re missing are those sellers moving from to bigger homes because they’re really tied to that interest rate.
Interest rates could come down into the fives. Right now, it’s a little unclear to me whether or not this is a 2024 prediction or 2025 prediction.
If they do come down into the fives, we’re going to see more inventory, but it’s going to be at higher prices.
Overall, there’s going to be more houses sold this year than last year, but I don’t think it’s going to be a lot more. We’re probably going to see 10 to 15% more transactions. The bottom line is, if you’re thinking about buying a house, it’s probably not going to get any cheaper.