For decades, the real estate industry has been a linchpin in building a strong middle class and thriving economy. Homeownership, after all, is a key component of the traditional American dream. That’s still mostly true, but there’s no doubt things are changing.
First-time homebuyers face more hurdles than ever to break into the market. Housing inventory is an enduring challenge. And federal lawsuits may change how agents earn a living in real estate sales.
So where do we go from here, and what needs to happen in 2024 to ensure a strong, robust industry that maintains its place as a key wealth builder for American families?
Mortgages and lending
So much of the housing market slowdown of the last two years has centered on the Fed’s decision to raise interest rates to combat inflation, which has simultaneously raised rates on mortgages.
After more than a year of increases, the Federal Reserve announced Dec. 13 that a pause in interest rate increases would continue and that a series of rate cuts is likely in 2024. That’s great news for homebuyers who have watched inventory shrink in markets across the country. After hitting a high of 7.79% in August 2023, rates fell to 6.95% the week of Dec. 14, marking their first positioning below 7% since August 2022.
The news also sent a jolt of positivity rippling through the real estate industry. There’s real belief in brokerages and lender offices across the country that the lull of 2023 is over, and 2024 has the potential to be a rebound year.
Victor Ciardelli, president and CEO of Guaranteed Rate, is very optimistic about 2024 in light of the Fed’s announcement.
“Interest rates have come down a little,” he said. “I feel like they’re going to keep coming down. I also think there’s a lot of pent-up buyer demand. As soon as interest rates start getting into the fives, things are really going to start to move. There are a lot of buyers out there who are going to start to engage.”
The market has been waiting for a while to feel that the Fed believes inflation is starting to come down, Ciardelli said. As the price of goods and services return to normalized levels, interest rates should improve.
“In our company, people are really pumped and excited,” he said. “There’s no doubt there’s a tremendous amount of optimism with everybody. And they should be optimistic. The more optimistic people are and the more excited people are, it’s the law of attraction, it feeds into a better purchase market. Real estate agents start talking about it. Loan officers are talking about this is the time to jump in, this is the time to buy. And then it just feeds on itself. It’s really going to propel the marketplace in a positive way.”
Lenders have many tools at their disposal for helping first-time buyers enter the market in the coming year, Ciardelli said.
“There’s more first-time homebuyer affordable programs today than there ever has been,” he said. “Fannie, Freddie, FHFA, VA, FHA have all really expanded their guidelines, specifically for first-time homebuyers. It’s honestly really worked out well for first-time homebuyers. Now with interest rates coming down and with low down payment assistance programs, it really puts the first-time homebuyer in a better position than ever before.”
Making the market work for agents
Thad Wong has witnessed the market soar and dip multiple times since he got his start in real estate in the mid-1990s. The co-CEO of @properties and Christie’s International Real Estate has seen plenty, and he’s expecting a market rebound in 2024.
“I’ve never been more optimistic for a more robust spring market than what’s currently anticipated,” he said. “I’m extremely bullish. I believe the market will surpass expectations. I personally don’t expect rate reductions until Q3, and my hope is that those reductions will only continue to fuel the market through the year.”
There have been plenty of questions and concerns in the wake of the agent compensation lawsuits brought against NAR and several large brokerages in 2023. In that turmoil, Wong sees opportunity for agents.
“I would like to see a flight to quality, meaning any good news that may materialize from these lawsuits would be greater discretion from the consumer about which agent and which brokerage to align with,” he said. “I think what will happen is greater scrutiny of the value proposition of both agent and their brokerage to yield a greater consumer experience. Bottom line: Better brokers will rise, worse brokers will fall.”
One of the differentiators for agents, and something agents can do to stay on top of their game this year, is a greater focus on marketing, Wong said. He’s hopeful agents will “reinvigorate” their marketing efforts, using social media, direct mail, Private Listing Network and more to take advantage of the expected improving market this spring and beyond.
Wong offered one pause to his positive outlook for 2024, something to monitor midyear. “There’s one asterisk: If there is an abnormal chaotic development as a result of the election during the summer, that’s one thing
that could severely stall the volume of real estate sales that could be achieved,” he said.
Inventory issues
If rising interest rates are the primary culprit in the recent real estate slowdown, the next most-common scapegoat is inventory, or lack of it. That lack of industry in markets from coast to coast has continued to drive up prices, creating challenges for first-time homebuyers and for agents hunting for new listings.
Erik Doersching is president and CEO of Tracy Cross & Associates, a national real estate analysis and consultancy firm. He would like to see a shift in the supply-side issues that are preventing builders from bringing homes to the market fast enough to meet demand.
Doersching believes municipalities and builders should work together more on the approval process to meet the demands of the market so that one side or the other is not so stringent in their requirements.
“I would say that’s where emphasis should be placed, to get more of a collaboration from start to finish in terms of what’s going to be approved and ultimately produced so that it can actually get done,” he said. “We work in markets around the country, and sometimes we see developments that get out of the ground so quickly in certain areas. It just begs the question of why certain areas allow us to work together much faster, and others don’t.”
Efficiencies also can be found in terms of design, resulting in an accelerated construction schedule, he said.
“Without sacrificing quality, because you don’t have to, there can be efficiencies in design that are functions of value engineering more than anything, but it doesn’t sacrifice the quality of construction,” Doersching said. “It just makes things move faster and helps with higher costs that exist in the construction sector.”
Doersching noted that bringing more new-construction homes into the market is primarily the responsibility of the largest publicly-held builders in the area. In Chicagoland, where Tracey Cross & Associates is based, those builders are DR Horton, Lennar, Ryan Homes, Pulte and M/I Homes. Those firms account for nearly 80% of all homes built in the region, Doersching said.
“The process in Chicago is not easy from a timing standpoint,” he said. “To acquire the land, go through the entitlement process, start development and get the home can be an arduous task to do inside of two years. I think that’s the biggest challenge.”
One area in which the industry could improve is in providing what Doersching calls “a full continuum of products” that meet the qualitative distribution of demand. Parts of Chicagoland, for example, are missing out on rental apartments as well as lower density rentals that establish an overall hierarchy of housing, Doersching said.
That imbalance is evident in several markets, not just the Chicago area.
“If you really start to squint your eyes and look around this region at different sub-markets, you’ll say, ‘OK, well, this sub-market has this and this, but it’s missing this, this and this,’” he said. “It’s not just an overall supply; it’s a lack of hierarchy in housing product.”
EXPERT SOURCES
Victor Ciardelli
President and CEO, Guaranteed Rate
Erik Doersching
President and CEO, Tracy Cross & Associates
Thad Wong
Co-CEO, @properties and Christie’s International Real Estate