So now what?

Real Estate Market Update from Mark Sprague
Independence Title’s Director of Information Capital

In real estate, the big question is:  “When will we return to normalcy?” Would anyone be surprised if – when compared to historical norms – we are at a better place than historical norms? Is the market comparable to the last 5 years? No, but most of us understand that the last 5+ years in real estate were anything but normal, due to the unparalleled amount of monetary stimulus during COVID, including lowering the federal funds rate to .25, the lowest it had been since the great depression. (The federal funds rate is the rate that the federal reserve lends to their 12 member banks. Banks, mortgage companies, equity, etc. borrow from the member banks and add another 3 points for loan origination, keeping the doors open, etc.)

So, what has happened in 2024? The market is returning to normalcy. Yes, rates were raised in 2023 to slow inflation, to which real estate prices contribute mightily.

Rates likely won’t move till next spring, and even then slightly, with no guarantee of going lower. Historically, in the year after rates are raised you see an increase in sales as consumers realize rates and values are not going down.

We will see mid- to high-single-digit appreciation this year and next, which is still above the historical average over the last 50 years of 3.5%. For the last 5 years, we did not have inventory (for sale or rent), raising appreciation past historical norms.

So, let’s start why we won’t see lower rates anytime soon. Simply, with unemployment at historic lows, lowering rates would feed inflation. Not what the Fed or consumers want.  Presently, I don’t see rates moving until 2025. Although this may be seen as negative news, home sales continue to improve in our metros. Historically we see a 20% increase in sales after consumers accept the reality that rate increases will be long-term. That seems to be what we are seeing.


So, what should you tell your clients?

Talking points:

  • Inflation News – CPI consumer inflation has slowed, but is still too high. Year-on-year total CPI and Core CPI inflation rates saw a slight slowdown in April, but they’re still well above the Fed’s 2% target. Total CPI decelerated to 3.4% from 3.5%, while Core CPI eased to 3.6% from 3.8%.
  • Interest Rates – A Fed rate cut is unlikely. With inflation remaining above the Fed’s 2% target, hopes for rate cuts this year are fading. The strong jobs market and robust growth data further lessen the likelihood of rate cuts this year.
  • Wall Street effect- While the chances of rate cuts are low, reduced prospects of rate hikes could buoy equity and bond prices while softening bond yields and the dollar.
  • Inflationary Pressures -month-on-month, both Total CPI and Core CPI prices saw a 0.3% increase, indicating persistent inflationary pressures. You don’t have to tell us, just look at your grocery bill, hotel bill, etc.. Food prices remained steady, energy prices rose modestly, and shelter costs continued their upward trajectory.
  • The big question is: When will inflation come down to the Fed’s 2% target? With a strong labor market, high geopolitical tensions, and summer driving season with gasoline demand looming, it probably will not be until 2025.  The realist in me, says 2nd quarter at earliest.
  • If we consider the big picture, inflation is higher than we want, globally as well as nationally. Fortunately, jobs and growth remain solid. Residential real estate continues to do better than 2023. The stock market is at record highs. Texas continues its great run of attracting corporate and regional headquarters, more than 210 in the last 5 years. Rents have plateaued.
  • Challenges – Bank regulators are pressuring regional banks on the need for more capital, which in turn will cause distress on leveraged commercial deals. This is a normal cycle after bank failures the previous 24 months.
  • Correction to sales values and incentives – As inventory begins to creep up from historic lows, if properties are on the market more than 30 days, in all likelihood, they are overvalued. We’ll see more median values with incentives: paying towards closing costs. Buying the rate down, etc. seem to have a strong effect on quicker sales.


Where is the real estate market headed? 

Forecast for 2024 – 2025:

The market won’t be as hot, but supply will stay tight.

Remember how crazy the housing market was back in 2022? Buyers were freaking out, and sellers got multiple offers over asking price.

The good news is the market has definitely calmed down, both in Texas and all over the country. Every Texas metro has more active listings, which gives buyers more choices.  In Texas, we are seeing market progress toward more balance between buyers and sellers.  An increase in the supply of homes and the average number of days homes stay on the market means that buyers in many areas may have more choices and a little more time to make a decision.

Appreciation will relax, but not crash.
Price appreciation has slowed in Texas, but you should continue to go up some in 2024, just not as aggressively as the last 5+ years.

Currently, the market has about 3.7 months of home inventory. That number needs to hit 6–6.5 months just for the market to be balanced. So, as long as supply remains tight, prices will continue to increase.

Demand for buying a house will stay strong.

With job creation continuing strong in Texas, there is not enough housing inventory. Inventory has crept up in all metros, but still a sellers’ market, as less than 6 months inventory is equilibrium. Inflation and high interest rates have slowed buyer demand, but it’s still strong. And Texas is still a popular place for people looking to relocate from states with higher taxes and home prices.

One thing to watch is zip codes at or above 6 months of inventory. The majority seem to be luxury with higher price points. Most seem to be overvalued as evidenced by supply and DOM, but all are seeing an increase in sales monthly. Possibility of a disconnect between sellers and the market?

Austin: 78669, 78645, 76574, 78615, 78645, 78734, 78752, 78746

Dallas: 75201

Ft Worth: None

San Antonio: 78201, 78237, 78207, 78204, 78203, 78210, 78263

Houston: 77026, 77011, 787002, 787051

If you’ve been waiting for the housing market to slow, this may be it. However, based on job creation projections, there is not enough inventory for sale or rent over the next 5 years. If you’re watching for a housing market crash, you’ll be waiting for a while. Like, probably forever. For housing prices to totally plummet, inventory would have to go way up to exceed demand, and no one foresees that happening anytime soon.

Armed with this knowledge, let us know if you have any questions or concerns by contacting your Independence Title marketing representative.