Tuesday, December 19, 2023

I’ve been thinking about the economy and the housing market.  Recent news that the Fed signaled they’re probably done raising interest rates, combined with a lack of affordable inventory, plus an incredibly low unemployment rate and some banks signaling an interest in selling off some underperforming debts, and oh yes, the bond yield rate dropping 11 points to under 5 percent, equals…who knows?

What interesting times we live in.

I’m far from the first person to wonder how we will have a recovery that isn’t led by the housing market. We’re quite accustomed to real estate leading our economy back from tough places. Some have wondered if the signs of a potential recovery are real, if housing isn’t the major engine driving improvement.

Others contend that a little bit of a recession in the housing market would be a healthy thing for our overall economy. Certainly, not everyone agrees.

Though we remain poised, ready and hopeful that the housing market will bounce back with strong activity in 2024, not everyone agrees on where the business will come from.

Many current owners don’t believe they can afford to move, because they would have to replace their current 2 or 3 percent mortgage with a 5 or 6 percent new mortgage. A subset of these are deciding to remodel their existing homes, rather than buy a replacement home. If they need remodel cash, we could see a refi boom.

The affordability index became unfavorable late this spring (according to NAR). This occurs when median family income falls short of the median qualifying income required for a mortgage for a median-priced home. Home prices are up while incomes are stagnant or weak, comparatively. Absent significant wage increases, or additional household members going back to work, it seems the quicker relief for this equation will be a reduction in interest rates.

With the commercial sector going through prolonged interesting times, some have suggested we could see prior office spaces converted into multi-family dwellings. Which could solve more than a few problems. In many areas, zoning and permitting procedures are not conducive to this type of repurposing, but some cities like San Francisco and Boston are offering incentives for these conversions. We will continue to watch those activities, with interest.

Is our overall economy ready for interest rate reductions, so we can get back to a good economy and a strong housing market? Currently, Wall Street and many economists seem to think so. They look to signs that we might have come out of these weird economic woods having avoided a recession. Which, if true, would be a minor miracle, though one not without pain.

As we watch, and wait, we retool, reinvest, and get our time off taken and behind us. With all the pent-up demand, as soon as one or more of these factors change even a little, we’re likely all going to be begging for a day off once again.

Until next time,

Mary Schuster
Chief Knowledge Officer
October Research, LLC