Real Estate

July 01, 2024

PARTNERS VOICE | MARKET FORECAST
July 2024

If there is anything we have all learned over the past three and a half years, it's that we cannot foresee the future…and that we would be using the word "unprecedented" an unprecedented number of times. In the midst of everything happening in the country, real estate is moving at a slow yet steady pace in the right direction, both for buyers and sellers. We see inventory rising, and even with the Fed waiting for inflation to cool further before cutting interest rates, increasing momentum in the market. We'll unpack these trends below, and as always, if you have questions or need clarification, please feel free to contact us directly!

Inventory Rising

As agents and prospective buyers have undoubtedly noticed, there has been a slow increase in homes coming on the market this year. Inventory increased 5% in June to 10,086, and while still below the 3-year pre-Covid average of 12,088, that is 29% higher than last year. Though many homeowners remain (understandably) hunkered down, holding onto their low fixed-rate mortgages, some have had to meet relocation deadlines for new jobs, to upsize square footage to accommodate a growing family, or simply grew tired of waiting for rates to fall and decided to make a move.

On the other hand, demand is down 3% and will probably stay down until mortgage rates drop below 7%. That said, demand fluctuates greatly depending on a home's selling price. For homes under $1.5 million, and even more so for homes below $750K, there are more potential buyers than available inventory. At the other end of the spectrum, luxury listings ($4-8M+) are more plentiful than the demand for them, and therefore are spending much more time on the market awaiting buyers.

WIth supply rising and demand falling, the current average number of days on market (DOM) in LA County was 79 in June. Breaking that down by price range, DOM averaged 56 days for homes under $750K, 53 days for homes priced $750K-1M, and 73 days for homes priced from $1-1.5M. Combined, homes in the under-$1.5M range represent 61% of inventory and 80% of demand. As more inventory comes on the market, these homes will spend fewer DOM before selling.

Because of higher demand for more affordably priced homes, potential buyers are quick to hop on new listings, paying them the most attention in the first 10 days. As these homes stay on the market, though, attention wanes, and buyers move on to the next wave of new listings. The longer a home stays on the market, especially if inaccurately valued, the more negotiating power the buyer has, and the more likely the seller will have to reduce the asking price. It's therefore very important to accurately price a listing - realistically factoring in the home's condition, location, and amenities to determine its fair market value - to increase the likelihood of a quicker sale.

The Fed holds steady

At the beginning of 2024, many economists predicted that rate cuts by the Federal Reserve would be in full swing by now. But as they say, if anything is guaranteed, it's that nothing is guaranteed. In its June 12 meeting, the Fed voted unanimously to hold rates steady in the current range of 5.25%-5.5%, even with a letter from a trio of US Senators asking them to give Americans a bit of relief. While inflation has slowed from a recent peak in 2022, the Dow Jones is up, and the S&P 500 hit a new high, consumers are still facing high prices. There has been a 0.4% increase in household shelter costs (rent and mortgage payments, real property taxes, heating fuel, utilities (gas, water, electric), and trash collection), and the CORE CPI (consumer price index excluding food & energy prices) has risen 3.4% over the past 12 months.

However, the much-better-than-anticipated May jobs report, wage growth, and data showing that inflation is finally starting to cool were not enough for the Fed to make a move. Greg McBride, chief financial analyst at Bankrate.com, stated, ““It’s not enough that the rate of inflation has come down, prices haven’t, and that is what is really stressing household balances.” Chris Larkin, managing director of trading and investing for E-Trade, added, "The Fed has suggested it will take more than one month of favorable data to confirm inflation is reliably moving lower again, so there’s still no reason to think a first rate cut will come any earlier than September.”

The Fed hasn't cut rates since early 2020, and now, hovering at its highest borrowing rate in 23 years has investors on edge. Following the release of the May jobs report, economic analysts have put the possibility of a rate cut in September and a second cut in December at 50/50. The Fed, however, signaled there would only be one upcoming rate cut in 2024. In good news, the Fed did forcast core inflation dropping to 2.8% by year end, then to 2.3% in 2025 and 2.0% by 2026, each of which may increase the possibility of a cut in interest rates. And if inflation does trend downward, bringing rates down, more buyers will be empowered to flood the market.

What all of this is teaching us is patience, and the importance of productive, focused, and talented agents who understand the markets while also listening intently to the needs and preferences of their clients. Because we continue to expand our incredible team, Craft & Bauer has had a stellar year with a consistent, record-breaking number of pendings every month, despite the slow movement of the market. We'll continue to keep an eye on inventory trends and rate changes so that our agents can focus on the most important people - our clients.