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High inflation and the Federal Reserve’s action to tame it slammed the brakes on one of the hottest housing markets in history, and 2023 will go down as a year where too many buyers had too few houses to choose from. Cautious owners are unwilling to sell, expensive mortgages are pricing out overleveraged buyers, builders haven’t produced enough new construction and everyone involved is playing the waiting game.
But what will await them when 2024 finally closes the door on this strange and stressful year?
GOBankingRates asked some of the country’s most accomplished real estate agents that same question — and their predictions might surprise you.
Tight Supply and High Demand Will Still Define the Market — More So If Rates Fall
Bret Weinstein, CEO of Guide Real Estate in Denver, has ranked among the top 1% of Colorado agents for the last 10 consecutive years and has been featured in over 40 national and local publications.
He predicts the supply shortage that has come to define 2023 will carry over into the new year.
“Inventory is going to remain extremely tight,” he said, citing “the golden handcuffs of low interest rates.”
The term refers to the historically cheap pandemic-era mortgages that have been shackling potential sellers to their homes and depriving the market of sorely needed inventory.
“People are locked in and not incentivized to sell their homes,” Weinstein said.
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Plenty of others share that view, but Weinstein deviates in thinking that if the Fed offers relief in 2024, which many expect it will, cheaper loans will make the situation worse before it gets better.
“If we see interest rates go down even a little bit, there’s a ton of suppressed buyer demand, so over the next year expect more buyers but still less inventory and equity,” he said. “It’s going to take a little bit until sellers are willing to sell based on having a substantial amount of equity that can help them offset the higher interest rates. So next year, if interest rates go down, expect an explosion of buyers while we still have the problem of low inventory.”
Reluctant Sellers Will Get Creative
Bruce Ailion is an attorney and realtor with RE/MAX Greater Atlanta. A member of the RE/MAX Hall of Fame, RPAC Hall of Fame and the REALTOR Crystal Phoenix Award recipient, he’s been serving clients since 1979.
He’s well aware that many owners are bound to their current homes by golden handcuffs and can’t afford to sell and qualify for a new mortgage. He’s seen this situation before — and he expects sellers to get creative with solutions like wrap-around mortgages.
“For example, a homeowner has a house worth $400,000 and a loan at 3.25%,” Ailion said. “They want to buy a home for $900,000 with an $800,000 loan. The seller could sell their home to a buyer where the buyer puts 5%, 10%, and 20% down, and they offer seller financing at 7% to the buyer. They keep the 3.25% original loan and earn the spread between 3.25% and 7% on the original loan balance. This spread would be used to pay a portion of the new loan they take out at 7% when purchasing $15,000 a year in interest or $1,250 lower monthly payments.”
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Another solution is what Ailion calls “the unintended landlord.”
“Here the owner of a home with a 3.25% loan leases the property out to a tenant,” he said. “The rent earned while maintaining the 3.25% loan is used to pay the interest on the higher mortgage interest rate taken out on the new loan they obtain at 7% when purchasing a new property. Financially this is a better option, but it requires more work and comes with a higher risk.”
Expensive Loans and Inflated Seller Expectations Will Increase Days on Market
Debbie Boggs is an award-winning real estate agent in San Antonio and Austin, Texas, the author of “Marketing for the Staging + Design Industry” and the co-founder of Staging Studio, a RESA-accredited certification training provider, and By Design, a multimillion-dollar home staging company.
Her most surprising prediction for 2024 is a higher average days on market — an interesting bet with buyers primed to snap up houses in a market defined by low supply and high demand.
“We are likely to see an increase in DOM before we see large-scale drops in housing prices,” Boggs said.
High interest rates account for some of her reasoning.
“Today’s buyers simply cannot afford the same home they would have purchased in 2020,” Boggs said.
But seller psychology plays a role, too.
“At the same time, the real estate market has a big recency bias,” Boggs said. “If a seller knows their next-door neighbor sold their home for $800,000 six months ago, that is their benchmark for what they expect to sell their own home for. This duality is likely to increase days on market.”
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You’ll See Fewer Agents as a Tough Market Weeds Out the Pretenders
When the good times were rolling, there was no shortage of people looking to get into real estate in pursuit of a quick buck.
“The hot real estate market and soaring home prices of the last three years promised huge commissions for agents,” Boggs said. “It seemed like a golden opportunity for so many. Homes were selling so fast. Agents didn’t need to work that hard to hold deals together because there were always backup offers. Buyers were overlooking major inspection issues or waiving inspections altogether. Being a realtor seemed like fast, easy money, and more than 156,000 people got their real estate licenses in 2021 and 2020 — nearly 60% more than in pre-pandemic 2018 and 2019.”
Today, the money doesn’t come so easily, and the johnny-come-latelys are rethinking their career choices.
“A slower housing market means agents will need to work more hours for every home they sell — and for less money,” Boggs said. “More than 10% of agents quit in 2008 when the real estate market crashed. One big difference between now and 2008 is that there are fewer houses on the market. This means even fewer deals to go around, likely forcing more agents to give up their licenses.”
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