January Market Update

real estate Jennifer Ferrara January 22, 2024

Mortgage rates are plummeting, but how far will they fall?

The average 30-year mortgage rate fell 1.18% in the last two months of 2023, which is a significant drop from the 23-year high reached at the end of October 2023 and cut the cost of financing by 11%.

A 1.18% mortgage rate drop matters … a lot
In any case, for the >70% of homebuyers who finance their purchases with mortgages, rate cuts are very good news, as shown by the month-over-month increase in sales.
 
The 1.18% decline in mortgage rates has set the stage for a much busier spring and summer season, although we still expect a relatively slow first quarter. Interest rates are still too high for potential buyers and sellers to rush back to the market, especially when they expect further rate cuts. However, if mortgage rates were to drop another point to around 5.5%, a huge number of participants would jump back into the market. Remember that every 1% decrease in interest rates roughly equates to a 10% decrease in monthly financing costs. The inverse is also true, which is why rates have priced buyers out of the market and remain the primary cause of the market slowdown over the past two years.
 
As always, we will continue to monitor the housing and economic markets to best guide you in buying or selling your home.
We’ve included a Local Lowdown below to provide you with in-depth coverage of the Greater Austin Area.
 
  • Median single-family home prices increased month over month in December 2023, while condo prices were more mixed. The housing market tends to slow considerably in November and December, but Texas markets are positioned to have a far busier year than in 2023.
  • Active listings, sales, and new listings fell month over month. However, in 2023, inventory in Texas increased meaningfully. Rising inventory is definitely good for the housing market, which is likely to experience much higher demand in 2024.
  • Months of Supply Inventory indicates the selected Texas markets have shifted in favor of sellers for single-family homes, and are in a buyers’ market for condos. It’s common for MSI to trend higher in the fall and winter, when fewer buyers are in the market and sales slow.
 
Single-family home prices rose in the last month of 2023
In Texas, the home prices haven’t been largely affected by rising mortgage rates with the exception of Greater Austin, which has had a major price contraction since May 2022. Broadly, price contractions are normal in the second half of the year, so it’s hard to conclude that higher rates have had any meaningful effect on price across most of Texas’s major metros. We expect prices to remain below peak in the winter months, but as interest rates decline, prices will almost certainly reach new highs in the first half of 2024 in all the selected major markets except Greater Austin. Additionally, the inventory build-up in 2023 will create a healthier market in 2024, satiating demand as it grows.
 
Inventory, sales, and new listings declined month over month
Inventory trended higher into the fall of 2023, which is far from the seasonal norm. Typically, inventory peaks in July or August and declines through December or January. In November and December, as sales and new listings declined, inventory fell from the October 2023 peaks. As demand slows, buyers are gaining slightly more negotiating power and paying less than asking price on average. The average seller is receiving a lower percentage of list price than they did in the first half of the year, but only by 2-3%. The market generally slows considerably during the holiday season, but buyer competition will ramp up meaningfully in the spring, which will create price support.
 
Months of Supply Inventory rose meaningfully over the past six months
The long-term average MSI is around four to five months in Texas, which indicates a balanced market. An MSI lower than four indicates that there are more buyers than sellers on the market (meaning it’s a sellers’ market), while an MSI higher than five indicates there are more sellers than buyers (meaning it’s a buyers’ market). MSI rose significantly over the past six months largely due to the decline in sales and longer time on the market.
Currently, for single-family homes, Greater Austin favor sellers. For condos, MSI indicates that the markets favor buyers which is balanced.
 

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