INTEREST RATE UPDATE: Economic Conditions Remain Stubborn
With a fresh new year, you may have the goal to buy, upgrade, or invest in a property. Of course, “when will interest rates drop?” remains the #1 question for most buyers. As we explained in our previous blog, last year we faced a number of curve balls which kept rates higher than was predicted. But the Federal Reserve does intend to drop and stabilize interest rates once the economy slows down. Inflation, the extreme real estate market, and such was like an out-of-control train. The higher rates are part of “the brake system” to regain control and recalibrate our economy.
Read: Who is the Federal Reserve?
So what conditions would cause the Fed to “take their foot off the brake”:
#1 Unemployment Reaches 4.4%
At the end of December, it was 3.7%. All throughout 2023 it hovered between 3.4-3.9%. The latest ADP Jobs Report showed the U.S. added 216,000 more jobs. Wages increased by 4%, year-over-year, which is a slower rate.
#2 Consumer Spending Goes Down
The GDP has been outperforming analysts’ expectations. needs to be lower, but it has been increasing. Among all the goods and services produced, there was a 3.3% annualized rate for Q4, 2023. Wall Street was predicting a 2% gain. Infact 2023 saw a 2.5% increase compared to 2022.
#3 The Rate of Inflation Decreases to 2.2%
Landing at 3.4% in December, the rate has been yoyoing since June between 3.0-3.7%.
Due to these positive economic trends, the average 30-year mortgage rates are creeping back toward 7%. However, despite the rise, rates are considered “stable” overall as buyers have adjusted their budgets and strategies. So, as spring approaches, we’ve got a resurgence of potential homebuyers entering the market, with mortgage purchase applications reaching their highest weekly levels since the first quarter of ’23.
So when could interest rates drop and stabilize? The Fed and other experts are estimating sometime this year.
Remember…the first of March is just weeks away.
Buyers, your hands are not tied. Waiting until interest rates drop may not be the best strategy for you. Now, buyers have more negotiating power than in the last three years (and five years in our hottest Front Range markets). But this is only a window of opportunity. When interest rates drop and stabilize, the competition/demand will return. Talk with your RE/MAX Alliance Agent about your local market as soon as possible to stay updated on how these shifts impact the neighborhoods/communities you are searching.
Sellers, start working with your RE/MAX Alliance agent on a game plan. Now is a great time to make home improvements/remodeling that will boost your home’s value and appeal to buyers. When a home is priced right, presented well, and in a desirable location, we still see multiple offers!
Sources: bea.gov, federalreserve.gov, freddiemac.com, tradingeconomics.com, ismworld.com, sifma.org, cnbc.com