Navigating 2024: A Comprehensive Dive into Housing Insights from NPLA Meeting with JBREC
Recap and Insights provided by NPLA Member James Martin, VP of Operations at GoDocs
During the recent NPLA meeting, attendees were treated to a deep analysis of the 2024 housing market by John Burns Real Estate Consulting (JBREC), presented by Alex Thomas, Senior Research Analyst. As we explore the key takeaways, let’s delve into the macroeconomic landscape, inflation trends, and specific figures shaping the new home, resale, and fix-and-flip markets.
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Macro Outlook and Fed’s Pivot
The prediction for the economic landscape of 2024 has undergone a significant recalibration, largely driven by the Federal Reserve’s potential pivot. The initial forecast, which indicated a year-end 2024 rates projection of 5.1%, has been notably altered to reflect a more accommodative stance at 4.6%. This adjustment suggests that there may be one, two, or even three rate cuts throughout the year.
Housing Market Overview
A journey through recent months highlighted the market’s resilience. October faced challenges with difficulties in home purchases due to mortgage rates soaring to 7.9%. However, December emerged as a turning point with the Fed’s optimism-inducing announcements.
Inflation Trends and Economic Indicators
Concrete numbers highlighted the current inflation rate hovering at approximately 3%. Consumer expectations mirrored this trend, settling around the 3% mark. A deep dive into economic indicators showcased surprising strength. Real GDP growth, reported at 3.3% quarter over quarter, exceeded economist expectations. Job growth remained solid, with 216,000 jobs added last month. Labor dynamics, depicted through the labor force supply versus demand, revealed a tight market with a gap of approximately 3 million.
New Home Market
Mortgage rates experienced a 1.2 percentage point decline since October, currently resting at approximately 6.7%. Affordability received a boost as builders offered rate buydowns. As an example, a staggering 47% of loans in San Antonio, TX locked in rates at less than 5.5%. The new home market claimed a larger slice, capturing about 14% of the overall market share.
Noteworthy was the improvement in affordability, with the Burns Affordability Index dropping from 47% in October to about 42%. Builders strategically leveraged rate buydowns, making new homes more competitive.
Resale Market
In the resale arena, real estate agents reported a nuanced sentiment, with 60% acknowledging weaker-than-normal home sales. Expectations for the next six months showcased a positive trajectory, with 45% of agents foreseeing better-than-seasonal home sales. The persistent challenge, however, remained in the form of low inventory, with 69% of agents noting that buyers outnumber sellers in their market.
Fix and Flip Market
The fix-and-flip market encountered headwinds, with the index falling to 61 in 3Q23 due to a spike in rates. Flipped home transactions witnessed a notable decline. Prices for flipped homes fell about 3% YOY as of the third quarter of last year, presenting challenges across regions. Finally, in the 3Q23 data, it was found that flippers selling below the initial after repaired value rose from 12% to 15% according to JBREC. However, JBREC predicts that 4Q23 data will likely trend in a positive direction for the fix and flip market compared to 3Q23 given the macro headwinds. Furthermore, a noteworthy 45% of flippers indicated plans to transition towards keeping more homes as rentals in 2023. Given that the average single-family renter saves about $1,200-$1,300 by renting instead of purchasing at today’s rates.
Single-Family Rentals
Examining the outlook for single-family rents in the current landscape, there is an anticipation of a general decrease from recent levels. The expectation leans towards normalization rather than experiencing outright rent declines, as observed in many apartment markets across the country. The single-family rental sector, in contrast to many multifamily markets, does not grapple with the same supply issues at present.
Especially in certain overbuilt Sunbelt markets, rents have seen a decrease between 2-5%. However, this trend is not mirrored in the single-family rental market. Currently, there are no substantial declines, not even close to the levels experienced in the multifamily sector. This stability in the single-family rental market presents an alternative option for flippers looking to navigate the evolving landscape.
Takeaways
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- The Fed’s strategic pivot has infused optimism into the 2024 outlook for both new and resale homes.
- The new home market will continue to outperform if builders continue to buy down rates.
- Keep a watchful eye on inventory dynamics, especially as rates decline.
- Fix-and-flippers will likely benefit from lower rates and improved affordability in 2024, aligning with broader housing market trends.
Author Bio:
GoDocs is an innovative leader in automated loan document generation, transforming the commercial lending process. With a fully cloud-based platform, GoDocs provides a flexible digital solution that makes commercial loans more cost-effective to document and faster to close, all while maintaining compliance in all 50 states. GoDocs is a Corporate Member of the NPLA.