It’s really nice to be ending a year with so many reasons to look forward to the next. The past 12 months were like being on a rollercoaster with too many loop-de-loops. You were having fun, then you were upside down which was ok the first time but by the third time you were getting sick. You’re praying this is the last drop and then you start heading back up again, knowing full well that only means you’re about to feel your stomach in your throat again. In 2023, the economy defied expectations and warnings alike.
It wouldn’t be responsible to only focus on the upcoming advantages we’ll have when there is still quite a bit of uncertainty. So let’s begin this forecast with the potential troubles we should keep our eyes on in 2024.
There are wars and there are upcoming elections, which also feel like wars. Aside from the US Election that we’ll all become completely consumed by, that we will avoid dinner parties and Facebook because of and that we will stop talking to that one couple on your in-laws side in advance of…there are also elections in several other nations that host the world’s larger economies. Speaking of the world’s largest economies, we’ve talked about China before and it would be worth a revisit because that is definitely something to watch.
The soft-landing debate is not settled. While no one wants a recession that brings widespread pain, we can’t completely rule that out. The Fed themselves said that the American household and business would likely feel pain as a part of their attack on inflation. I think the reason many haven’t felt it yet was they had built a decent savings with the stimulus money. So even when they were laid off, they had a bank balance to work with until they found another job. The data shows that bank balance is gone and the credit card is maxed. We shall see how strong the consumer remains.
That being said, the December survey from the National Association for Business Economics showed 76% of economists believe the chances of a recession next year are below 50%. Compare that with the average joe. When surveyed by MassMutual, 56% of people say the economy is already in a recession. Both sides are fairly split on the probability.
This is what Morgan Stanley is calling the Fed’s rate cut strategy. Per usual the Fed is caught between two mandates. They risk a more serious recession by keeping their Fed Funds rate too high for too long. On the other hand, if they cut rates too much, too quickly – inflation could rebound. Remember as interest rates come down, consumers spend which drives prices back up.
Now, let’s shift to all the reasons we have to be optimistic about 2024 and the opportunities it will present in real estate.
It is unlikely we will see interest rates crash down. The Fed rate cuts that were announced earlier this month have already been priced into the market. I’m hoping, as it would make the market much more approachable for the consumer, that rates will gradually decrease towards 5%. While lower interest rates are definitely the goal, because they will boost affordability – we know they are a double-edged sword due to the lack of inventory.
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Lower interest rates may help sellers find the motivation to get into a home that better fits their current needs. It’s never easy to walk away from a 2% interest rate but at some point, quality of life will win. It’s easier for quality of life to win when interest rates are in the 5’s rather than 8’s. Sellers have to be able to afford their new mortgage as buyers to become sellers in the first place. This won’t solve the inventory problem but it will help. It’s something you should be reaching out to your clients who were hesitant to make a move this year to discuss.
We all know someone who didn’t renew their real estate license because this year was so challenging. I’m not throwing any shade in their direction either. Working in sales, especially in an industry as reactive as real estate is not for everyone. The fact is that many of the part-timers, as well as the folks with the worst commission breath who were in this biz to make a quick buck…have left. That is good news for the career folks like me. It’s also good news for the consumer, because they are more likely to land in the hands of true real estate advisor. If you aren’t sure how to identify a good realtor from a sleazeball, check out these tips.