Mortgage rates poised to drop as Fed projects 3 cuts

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Mortgage rates poised to drop as Fed projects 3 cuts link

• Federal Reserve policymakers predict three rate cuts by the end of next year, influencing mortgage rates to retreat from their 2023 highs. Bond market investors expect the first cut as early as March, with futures markets indicating a high likelihood of multiple cuts by May.

• The anticipated rate cuts are a response to cooling inflation, which dropped to 3.1% in November. This shift marks a significant change from the Fed's aggressive rate hikes between March 2022 and July 2023, aiming to stabilize the economy post-pandemic.

• Mortgage rates, closely tied to 10-year Treasury yields, are expected to follow the downward trend. Rates on 30-year fixed-rate loans have already decreased, dropping 85 basis points from a 2023 peak of 7.83%, and are likely to continue declining, benefiting the housing market and mortgage lending in 2024.

Asking Rents Post Biggest Decline in Over 3 Years link

• In November 2023, the median U.S. asking rent fell by 2.1% year over year, marking the largest annual drop since February 2020. This decline is attributed to a surplus of apartments from recent building booms, leading landlords to lower rents to fill rising vacancies.

• Despite the overall decline, rents in the Midwest are bucking the trend, rising by 4.6% year over year. This increase is partly due to people moving to the region for better value, contrasting with the West where rents fell by 1.8%.

• The rental market is also influenced by economic uncertainties and the slowing of household formation. With rents still 22.1% higher than pre-pandemic levels and only 4.2% below the August 2022 peak, many Americans continue to find homeownership out of reach, keeping the rental market active.

Student Housing Pre-Leasing Hits Early High for Fall 2024 link

• Record pre-leasing for Fall 2024 student housing is underway, with 28.8% of beds at 175 core universities already claimed as of November. This marks the highest October-to-November leasing jump ever recorded, with a 17% increase in bed leasing.

• Several universities, including Tennessee, Purdue, Clemson, Arkansas, and Wisconsin – Madison, have pre-leased about two-thirds of their privately owned student housing stock. This trend reflects a significant demand for student accommodations.

• Rent growth in student housing is still robust but shows signs of moderation. As of November 2023, same-store effective asking rents grew by 7%, a slight decrease from the 8.7% growth in November 2022. Rent growth was strongest in properties more than one mile from campus, though this trend may reverse in the coming months.

NAR Forecasts 4.71 Million Existing-Home Sales link

• The National Association of Realtors (NAR) predicts a significant rise in home sales in 2024, with 4.71 million existing homes expected to be sold. This marks a 13.5% increase compared to 2023, indicating a growing housing market.

• Median home prices are projected to reach $389,500, a modest increase of 0.9% from the previous year. This stability in prices, along with rising incomes, is set to modestly improve affordability for home buyers.

• NAR Chief Economist Lawrence Yun anticipates a 30% increase in housing inventory as more sellers enter the market. This surge in inventory, coupled with falling mortgage rates and rising income, is expected to drive a faster recovery in selected U.S. markets.

Home Flipping Activity Keeps Falling While Investor Profits Keep Rising Across U.S. In Third Quarter Of 2023 link

• The home flipping rate in the U.S. decreased to 7.2% in Q3 2023, marking a decline for the second consecutive quarter. This rate is down from 7.9% in Q2 2023 and 7.7% in Q3 2022, reaching the lowest point in two years.

• Despite the decline in flipping rates, profits for home flippers are on the rise. The typical profit margin increased to 29.8%, up from 29% in the previous quarter and significantly higher than the 22.4% low in late 2022.

• Raw profits from home flipping also showed an upward trend, reaching $70,000 in Q3 2023. This is an increase from the previous quarter and $15,000 more than the low point of last year, signaling a rebound in the home-flipping industry.

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