January 2024 Real Estate Market Overview

The real estate market is seeing signs of significant recovery after more than a year of issues due to high interest rates and low inventory. Demand for new housing is on the upswing, and home builders are cautiously optimistic about the future. However, affordability remains a consistent problem, and many prospective buyers may still struggle to find a home they can afford to purchase until prices start to fall.

Falling Interest Rates Spurs More Buying

The interest rate for a 30-year fixed rate mortgage with a conforming loan balance has fallen from its high of 7.76% in the first week of November, to 6.62% in the first week of January. This dramatic shift downwards is largely attributed to the Federal Reserve backing off its aggressive anti-inflation efforts, which have driven interest rates up for several years. This has led some to begin buying homes once more, when previously they may have balked due to higher interest payments on their mortgages.

New Construction Alleviates Inventory Issues

Another important contributor to potential optimism for the market is increased construction on new housing. As more contracts for new homes come to fruition, the pressure on the market caused by a lack of available inventory will decrease somewhat. This, in turn, will help to lower prices and encourage existing homeowners to sell their current homes in favor of newer buildings.

Home Builders Show Some Optimism

Home builders have also become more optimistic thanks to better economic conditions. Lower interest rates do not just lower the costs of mortgages, but also makes it cheaper to finance construction on new homes. This means that home builders are cautiously optimistic that the housing market will generally be on the upswing.

Affordability Remains a Significant Problem

That being said, real estate prices are still much higher than many prospective buyers can afford, and the decline in interest rates have only helped that somewhat. So long as homes remain unaffordable to many buyers, there will be a limit to how many people will be able to purchase any new or existing homes that come onto the market. However, this may be a problem that solves itself as issues related to interest rates and low inventory are also resolved.