1/2/24 REcap: What's in store for rates in 2024?

 

There were 2 pieces of noteworthy news to come out of last week. The first was the S&P Case-Shiller home price index for October, which reported that home prices across the 20 major US cities accelerated at their fastest annual rate of the year! Home prices are up 4.8% year-over-year and 0.6% month-over-month. “Home price gains in the CoreLogic S&P Case-Shiller Index have increased by 7% since the beginning of the year and are 1% higher than at the peak in 2022, recovering all losses recorded in the second half of 2022,” said Selma Hepp, chief economist at CoreLogic. It was the 9th straight month that home prices increased, despite interest rates being at 20 year highs! Absolutely astonishing.
 

November's pending home sales were flat compared with October and 5.2% lower than November of last year, according to the National Association of Realtors. Analysts expected pending home sales to move up 1%, but pending home sales remain at the lowest levels since 2001! While interest rates were MUCH lower in November than they were in October, transaction volume hasn't picked up because inventory is still extremely tight. There just aren't enough sellers to create a more robust market.  As interest rates continue to fall, more homeowners are expected to become sellers and transaction volume will pick up.

Initial jobless claims  were slightly higher than expected and continuing claims are still hovering around 2 year highs, but it's not enough to declare that the labor market has cooled.

However, this week will be a BIG week of labor market data to kick off 2024. Reports showing a cooling labor market would be great news for those rooting for interest rates to continue their streak of falling!  
 
How much have interest rates fallen since October 25, 2023 and what does that mean for your wallet?

At the peak on October 25, 2023, the average 30-year interest rate was about 8.25%! In just over 2 months interest rates have fallen significantly and now sit at roughly 6.5%. That's a drop of 1.75%!

So, the question on everyone's mind... What does that mean for my wallet? How much does that save me on my monthly payment?

Well to break it down for you, let's assume that you wanted to buy a $500,000 home using a $450,000 mortgage.

- At 8.25%, your monthly payment of principal and interest is $3,381. That's high!

- At 6.5%, your monthly payment of principal and interest is $2,844, which represents a savings of $537 per month or 16%! $6,444 a year in savings just from lower rates!!!

That's a HUGE savings after just 2 months of interest rates falling.

While the example above uses the average interest rate of 6.5%, it's important to remember that you may qualify for an interest rate BELOW 6.5% depending on your credit qualifications and purchase criteria. Some of our current prospective homebuyers have even been quoted interest rates in the 5% range. 

If you are looking to buy in 2024, please pay close attention to interest rates and buyer demand moving forward. Keep in mind that this housing market has become a balancing act, either buy while home prices are lower and swallow an interest rate that is less appealing or buy when interest rates fall and swallow a home price that is higher than it is today.