Follow interest rates and inventory closely in this market
“Rates, rates, rates,” according to
Dr. Elliot Eisenberg, are most important to follow in 2024. Eisenberg, who is Mlslistings’ partner economist, was back online a few weeks ago with Realtors from the Silicon Valley Association of Realtors and other subscribers of the multiple listing service to analyze current market conditions.
Like many economists, Eisenberg predicts mortgage interest rates will come down in 2024. Rates have been fluctuating from a high of 7% in January to the mid-6% range. Eisenberg said rates will remain a wild card for the housing market until the Fed actually cuts rates, which he says could happen in June.
Inflation is still in question, he said. “They (the Fed) are willing to be late; they don’t want to be too early. They don’t want to lower rates and then raise them again. Inflation is their guiding star.”
Inventory is the other important data to pay attention to, said Eisenberg. Although inventory has slightly increased, the increase is “virtually meaningless” in light of the number of homes needed. According to Realtor.com, the U.S. is still missing up to 7.2 million homes, due to more than a decade of under building relative to population growth. By some estimates, California is three million homes short.
Recession remains in the minds of many, but it doesn’t matter to real estate, said Eisenberg. He explained that the housing market has already been experiencing a recession. Since 2021, nationwide sales have dropped 33% to about four million units in 2023. It can’t get much worse because even in the toughest times sales volume has not dropped much lower than this baseline figure for any length of time because divorces, births, marriages, job relocations, deaths and other life changes force sales.
“2024 is shaping up to be a transition year where rates are a little too high and inventory is a little too small.
This year will be better. Rates will come down either way and 2024 will be better than 2023 on the real estate market side, recession or not,” said Eisenberg.
While there have been thousands of layoffs, many of which have hit the Bay Area, they can’t be looked at in isolation, said Eisenberg. He noted the country has experienced a large amount of growth. Most significantly, artificial intelligence is going to help San Francisco and the Silicon Valley region and boost labor productivity.
“There’s been a tremendous amount of enthusiasm and investment eagerness. AI is big for Silicon Valley. AI is the real deal,” exclaimed Eisenberg.
Despite the strong economy and high consumer spending, Eisenberg has found consumer confidence data “uninspiring” over the last couple of years. He speculates the divisiveness of politics in the country is manifested in the data. “I get the feeling that politics has polluted some of this data. I’m not convinced that it’s changed people’s spending patterns, but it’s changed their attitudes, their general sentiment.”
Should buyers wait till interest rates come down? Eisenberg said investors buying as many as five homes can afford to wait, but the typical buyer “should get on with their life,” buy a house and continue with their lives or they could find themselves still waiting many years later.
“What buyers should be doing now is looking where they want to buy your house, find the neighborhood you like, know the price point you want and be prepared to pounce when the house comes on the market, and know you can refinance down the road,” said Eisenberg.
Eisenberg is the chief economist for Graphs and Laughs, LLC, a Miami-based economic consulting firm that serves clients across the U.S. He writes a syndicated column and a daily 70word commentary on the economy.