The final economic reports of the year delivered a mixed bag of news, with significant implications for residential real estate. While the Federal Reserve’s cautious outlook on future rate cuts pushed mortgage rates to their highest levels in six months, lower-than-expected inflation data offered a glimmer of hope. For homebuyers and sellers, understanding how these economic shifts impact borrowing costs and housing demand is crucial to navigating the market effectively.
As anticipated, the Fed reduced the federal funds rate by 25 basis points to a target range of 4.25% to 4.50%. However, the dot plot projections for future monetary policy surprised markets by signaling fewer rate cuts in 2025 than previously forecasted. This more hawkish stance led to an unexpected rise in mortgage rates, which may challenge affordability for buyers in the months ahead. Buyers considering a purchase should act now to lock in rates before they potentially increase further.
Inflation trends provided some relief, as the Core PCE price index—the Fed’s preferred inflation measure—rose just 0.1% in November, falling below expectations. Although year-over-year inflation is down from its peak, progress toward the Fed’s 2.0% target has been slow. This ongoing inflation moderation could offer some stability to long-term interest rates, benefiting prospective homeowners.
Consumer spending, a key driver of economic activity, exceeded expectations in November with retail sales rising 0.7% month-over-month and 3.8% year-over-year. Strength in sectors such as autos, online sales, and sporting goods indicates resilient demand, despite rising credit card rates and higher prices. Robust consumer activity may support housing demand, particularly in markets tied to thriving retail and service industries.
On the housing front, existing-home sales in November rose 5% from October and were up 6% year-over-year, with the median price climbing to $406,100—an increase of 5% from a year ago. While inventory levels remain tight at a 3.8-month supply nationally, they are 18% higher than last year, offering slightly more options for buyers. Sellers should be prepared to leverage current market dynamics, including rising home prices and limited competition, to secure favorable outcomes.
With the Fed signaling a cautious approach to rate cuts and mortgage rates at six-month highs, the real estate market remains in flux. Contact us today to discuss how these economic changes could influence your buying or selling strategy and achieve your real estate goals in 2024.
Contact us today to discuss how these factors could influence your next move in the housing market.
