2019’s Echo in 2024: A Potential Roadmap to the Upcoming Market
“History doesn’t repeat itself, but it does rhyme.” - Mark Twain (Allegedly)
If I asked you to tell me what year I’m describing based on the following facts, what year would you guess:
The Federal Reserve raised interest rates 4 times through the year
Unemployment ranged between 3.5% and 4%
US Gross Domestic Product (GDP) continued to grow in the 2% range
Mortgage rates increased to a level not seen in nearly a decade
Raised concerns of a potential recession despite strong economic data
If you guessed 2018, then you’d be correct. These events might sound familiar because they are exact descriptions of what happened in 2023. Mortgage rates rose to a level (5%) not seen since 2011, leading to an unseasonably early slowdown in the housing market in the second half of 2018, despite rates dropping to 4.5% in December.
Then, in early 2019, concerns about a global economic slowdown prompted the Federal Reserve to announce they had no plans to raise rates that year. Mortgage rates, which had settled back to around 4.5%, dropped rapidly to 4% in a week and eventually into the 3% range for the rest of the year. Consequently, home buyers and sellers surged back into the market.
At that time, Bend and Redmond experienced a prolonged uptick in sales starting in March and lasting through June/July because buyers and sellers wanted to make a move in 2018 but didn't. Bend and Redmond also saw yearly home price growth peaks of 12% and 17%, respectively, in May (Bend) and June (Redmond). Total active inventory, while still strong at its peak, didn’t quite match that of 2018, marking the beginning of a trend that worsened in the following year. By the end of 2019, the increased activity in the spring and summer months more than made up for any lost sales activity in the slowdown of late 2018.
Considering everything that happened in 2018 and how it affected the housing market, it’s hard to not recognize 2023 has a familiar rhyme. Reviewing how the market responded in 2019 to rate drops has left me wondering if 2024 will continue that trend.
Similar to the four rate hikes by the Federal Reserve back in 2018, 2023 has gone through four rate hikes with expectations leaning towards a pause during their final meeting in December. Although they haven't definitively stopped further increases, recent economic data suggests we may have reached the end. This development has renewed discussions about a "soft landing" for the economy, potentially avoiding any kind of recession. The climb by mortgage rates to the 7% - 8% range has noticeably slowed both the national and local housing markets. Typically, Bend achieves 2000 residential sales within eight months; this year, it's taken eleven. Similarly, Redmond is projected to fall short of 1000 sales by year-end, a milestone usually reached by October.
Eventually, the Fed will confirm that additional rate increases are no longer needed, which should lead to a decline in mortgage rates to some extent, benefiting those buyers who are on the edge of being able to make a purchase. Wondering why the Fed might persist in increasing rates? Monthly inflation reports have consistently shown a slow improvement in inflation throughout this year. Should this trend reverse, raising rates would be their primary option.
While improved affordability through reduced rates will certainly help, I’m not sure home prices will provide the same assistance. In 2019, Deschutes county had at least 1500 homes for sale at any point during that year. In 2023, that number peaked just shy of 1200. The current supply, both in terms of quantity and variety, isn't sufficient to drive affordability by lowering home prices, despite the market slowdown since mid-2022.
While I’ve been mainly focused on Bend and Redmond, it’s important to note that the surrounding areas won’t be exempt from any impacts either. Josh Lehner from the Oregon Office of Economic Analysis highlights in an article that the neighboring cities and counties are affected during such periods. For instance, Crook County experienced the fastest population growth in the entire state in 2022 during the pandemic housing market boom. Lehner's article mentions, 'The increased demand... pushed some residents into nearby communities, likely due to housing affordability and availability.'"
So what’s the takeaway here?
If you are waiting until rates drop because you want or have to, be ready for an uptick in competition. Also, there’s no guarantee they’ll come down early next year and when they do, keep expectations in the 6% range.
Everything I’ve observed and written about for 2024 is an educated guess based on similarities between past and current events.
The housing boom of the pandemic exploited a supply/demand imbalance that remains an issue to this day. Both local and statewide changes are being taken to address it, but we have a ways to go.
If you're interested in gaining insights into the local housing market, weighing waiting strategies, assessing available homes in your price range, and discussing effective buyer and seller tactics in today's market, let's connect.
