The Federal Reserve has signaled 3-5 interest rate cuts this year, starting as early as May. What does this mean for the real estate market? Year over year, home sales in Los Angeles are down about 15%, although due to very low inventory and still a strong demand among buyers, home prices have increased slightly since last year. Financial experts (specifically interest-rate futures traders) expect the Fed to cut the federal funds rate by 1.25%. This should make a big impact on the real estate market. A 1% decrease in mortgage interest rate equates to a 10% decrease in monthly financing costs.
Many potential buyers will wait for these rate cuts to happen before making their move, but more buyers means more competition and higher home prices. This reactive approach will cause buyers to miss the current window of opportune market prices — which, in many segments, remain at or below pre-pandemic levels.
The inventory of homes for sale is still down about 6% year over year. Active listings in Southern California fell month over month with single-family home inventory falling to a record low. With spring around the corner, we expect it to increase through the end year. This increase will help the low supply problem, but with an interest rate cut on the horizon and competition heating up, demand will increase. The National Association of Realtors Chief Economist Lawrence Yun recently remarked that multiple offers are still occurring, especially on starter and mid-priced homes, even as price concessions are happening in the upper end of the market.
The news is great for sellers, but it can also be an opportunity for buyers. In 2024, while sellers are still in the driver’s seat, proper marketing and pricing are critical. Unlike the heady days of 2020 and 2021 when buyers removed all contingencies in their offer just to get into a deal, they’re taking their time and investigating all aspects of a potential new home - and asking for concessions - before they’re willing to close a sale.
The most successful sellers in this sub-market will be those selling desirable homes that are in great shape. You can expect to command top dollar while giving up very little in concessions during the negotiation. If you’re a buyer, this is a huge benefit to you as well. You should still expect to pay top dollar, but that top will be lower if you act now than if you wait for rates to decrease, and you don’t have to worry about waiving all contingencies in your offer, making sure the home you’re buying is structurally sound, with systems in good working order.
If you’re looking to purchase a home and can afford today’s interest rates, my advice is to get into the market now. We’re not quite in a balanced real estate market as far as supply and demand are concerned, but there is a little more balance within most transactions these days. If you need help navigating a sale or a purchase, I’d love to consult and discuss how I can help.