What’s REALLY Going on with Real Estate?
Interest Rates, Demand, and Home Prices in 2024
Over the last few years real estate has been wonderful, awful, and everything in between, depending on who you ask. And predictions about the future are all over the place. This has many people wondering: what’s really going on with the housing market?
I’ll start with a little history and then share the dynamics that have shaped our market more recently. Along the way, I’ll give you my take on what sellers and buyers can expect in the months ahead.
Always changing
I got into the real estate business in the mid-2000s, a few years before the bottom fell out. In 2008, banks imploded, thousands of homes flooded the market, and prices hit the floor. Many agents quit, and the ones that remained became foreclosure and short sale experts.
As “unprecedented” as the market was, I was impressed by the veteran agents who didn’t seem too rattled. They kept doing what they always did – helping sellers and buyers get good deals – they figured out more effective ways to do it. These were the agents who had built their businesses during the Savings and Loan crisis, when mortgage rates were as high 18%. They had already learned, as I was learning, that the market never goes one way or the other for very long.
How true that is. About a decade after the Savings and Loan crisis, rates came down and real estate flourished. Then, the market reversed course (the dot-com bubble), froze (9/11), recovered, rallied (the sub-prime mortgage frenzy), and then collapsed (the 2008 crash). Then came another recovery, another rally… and then, a pandemic.
The market is always in some phase of a cycle, and home values are therefore always fluctuating in the short-term. But, over the long haul, owning a home is an investment that always pays off.
Always appreciating
In the last 35 years, the average home price has risen 400%, significantly more than the inflation rate. In fact, if you look at any 10-year period in US history, without fail, you’ll see growth in home values. People who bought a home at the tippy top of the 2007 bubble still earned a 23% appreciation ten years later. People who bought in 1999 and were forced to sell at the very bottom of the financial crisis still earned a 35% return. And these are two “worst case” scenarios; from 2013 to 2023, the national average price more than doubled. Keep this perspective in mind when trying to gauge the short-term movements of the market.
The Boom, Inflation, and the Fed
During COVID, our money supply increased 27%, but families and businesses were saving cash at a rate of 25%. The new money wasn’t circulating, so we didn’t experience inflation right away.
Meanwhile, after a brief freeze in the market in April 2020, demand for housing increased. Interest rates were low and remote employment prompted many people to move. At the same time, new home construction stalled and resale listings were tight, so prices soared. This was the “pandemic boom,” from mid-2020 to mid-2022.
But, by 2022, spending increased and the savings rate decreased. Inflation hit a high of 8%, and the Federal Reserve (Fed) responded with aggressive bond sales and rate hikes. This caused mortgage interest rates to spike, as we all well know. It was tough, but most US housing markets, including Woodinville and the greater Seattle area, showed great strength and resilience. And the strategy worked: in January, the 12-month inflation rate was just 3.1%.
Interest Rates
This past October, the average 30-year fixed mortgage hit 7.75%, the highest we’d seen since the 1990s. Then, mercifully, over the next few months mortgages fell more than a full point.
This happened because inflation kept beating expectations, and in December the Fed announced they would hold or possibly lower rates. This lowered mortgages, despite no actual Fed adjustment, because banks set long-term rates based on short-term rate expectations. Now that they’ve already accelerated the reductions they expect over the next few years, what we’re seeing now are market-driven fluctuations.
Case in point, in February the average 30-year mortgage went up a few basis points. When this happened, some buyers and sellers worried rates might shoot back up. But that’s unlikely. According to a February prediction from mortgage research firm HSH, in 2024 the average 30-year mortgage should fall between 6.35% and 6.89%, compared to the current average of 6.90% (per Freddie Mac).
Transaction Activity
When inflation rose and interest rates went up in mid-2022, the boom ended, but there was no “bust.” Instead, both sides of the market contracted, shrinking supply and demand more or less equally. Seattle experienced a less proportional drawback, with buyer demand falling faster than supply. But we’ve been seeing improvements recently, and all measures suggest that demand is again outpacing supply.
In Woodinville, only a handful of homes are sold even on a “busy” month, but King County can give us a good idea of activity trends. In January, about 1,100 homes were sold countywide, a near 7% bump over January 2023. In February, 1,600 were sold – 500 more homes – representing about a 1% improvement over February 2023. In fact, these are the first year-over-year increases in activity we’ve seen in two years. And it happened in the winter of all times, typically our slowest season.
If winter’s trajectory continues, this spring we should see more pent-up demand released (buyers who held off in 2022 and 2023) and more listings hitting the market. Annually, the National Association of REALTORS® is predicting 13.5% year-over-year increase in transaction volume in 2024.
Home Prices
In February, the median home sale price in Woodinville was $1.13 Million, based on 12 sales. Prices have been hovering in the $1.1-1.2 Million range since December, down from May 2022’s surge but up substantially from our pre-pandemic range of $700,000-900,000. Countywide, the median is up a staggering 15% over February 2023, and it’s risen from the $600,000 range in 2019 to the mid-$800,000s today. Area home prices aren’t back to “boom” peaks we briefly experienced in the spring of 2022, but they’re very high and heading up rather than down.
February’s performance suggests we’ll see even higher prices this spring. It’ll depend on how the economy shakes out, but I’m anticipating a competitive season.
Bottom Line
The housing market today is on very solid footing. Homeowners have more equity than ever before and mortgages today are low-risk. The market is positioned to expand and appreciate barring an economic disruption, and if a disruption does occur, it’s strong enough to remain competitive and not crash.
All else being equal, this spring I expect strong demand, more seller activity, and high home prices. Homes that are prepared, priced, and marketed strategically will sell faster and for more money. On the buying side, most buyers are looking for move-in-ready homes, which means those willing to make compromises will find bargains. Bottom line? It’s a great time to sell or buy a home in Woodinville.
If you have questions about the market or your own home, give me a call at 206 504 3660. I’m eager to get to know you and help make your next move a success!