Middleton Elite Coaching shares five predictions for Q4 of 2023 and the 2024 real estate market.
The past year has been an interesting ride in the real estate business. Transactions are mostly down. Prices are mostly up. Real estate agents’ businesses are all over the place. While some are having their worst year in a decade, others are having the best year of their careers.
Meanwhile, predictions for mortgage interest rates in 2024 range from 4.9% to 7%+. Home price projections range from down 10% to up 10% (or more). And, let’s not forget it’s an election year.
How do you make sense of it all?
Middleton Elite Coaching Founder + Head Coach, Bill Middleton, provides a research-based explanation of what we predict will drive the real estate market over the next 12-18 months. He shares the biggest opportunities you can capitalize on, the traps to avoid, and how to lead your teams and clients through the fog.
Prediction #1 – Transaction count has bottomed and will likely see modest gains in 2024.
Nationally, the real estate market is down roughly 20% in units sold in the past 12 months.
Many agents have seen good growth in average sales price, giving them an illusion on the units side.
Over the past 12 months, is your business up, down, or sideways from a units standpoint?
If the market is down 25%, and you are down 10% year over year in units, technically, you have outpaced the market and gained market share.
Despite a down market, many of our clients are flat or up in units and have had the best year of their careers.
However, if the market is down 20%, you are down 40% in units, at that point, it is no longer just a market force. There was something you didn’t do. You got pushed back by some outside force and have to make some changes to keep from getting pushed back even further.
We don’t expect transaction count to return to the same levels as when mortgage interest rates were 3 or 4%. We may not see that transaction count in a given year again because of how stimulative interest rates and federal monetary policy were in the 2 years post-introduction to COVID-19.
Evaluate your business relative to the market trends of the past 12 months. Adjust your activities and strategies, expecting that the market will not see significant unit growth over the next 12 months. What do you need to do to accomplish the goals you set out to accomplish?
Prediction #2 – Mortgage interest rates are near their peak and should remain in the 6-7% range for 2024
Right now, counterintuitively, is a fantastic time to be a buyer.
Despite high interest rates and low affordability, serious and financially qualified buyers have opportunities – they just have to see through the emotion of the market.
“People are being more reactive to the changes in rates than the absolute value of those changes.” Mike Simonsen, Altos Research
Our takeaway is that there is an emotional reaction to rates in the 7% range, regardless of the payment change that rate represents.
Buyers have negotiating power because there are so few buyers in the market. Many buyers will enter the market if rates drop on the low side of what many experts predict rates will look like in 2024. Educate your buyers to get ahead of the buyer activity that such a scenario will bring.
Most buyers are looking at the percentage of rates, not the differences between the payments those rates represent. In most cases, these numbers are insignificant relative to the home’s purchase price.
We’ll use a $500K loan amount as an example. The difference in monthly payment between 6ish% and 7ish% is roughly $400. This extra $400/month over 36 months is $14,400. A buyer in today’s market would likely be able to negotiate the same $14,400 off the list price. Even if they couldn’t, a serious buyer with financial means would be willing to pay the nominal difference until rates came down and they could refinance.
Buyers waiting for rates to decrease drastically will miss the opportunity to get into a great house at a fair price. We can show them the opportunity that is there.
Prediction #3 – Baby Boomers will continue to have an outsized impact on the market through cash purchases and migration.
Here are some fun facts about Baby Boomers:
(from an episode of Bloomberg’s ‘Odd Lots Podcast’ featuring Jim Egan of Morgan Stanley and other sources)
• 50% of Baby Boomers are cash buyers
• Most have been in their home for a long time (20+ years)
• Most have accumulated a lot of equity in that time frame
• Many are selling and rolling that equity into their last major real estate purchase
• Many are using that equity cash as a competitive weapon in multiple offers
Repeat Buyer Stats:
Of any age repeat buyers, the historical median distance they have moved is 10-15 miles. This considers those who are moving across town and those who are moving across the country.
Over the past 2 years, that number has changed significantly.
• The median distance all home buyers have moved is 50 miles
• For repeat buyers, the median distance is 90 miles
• 25% of all repeat buyers moved more than 450 miles
The next 5-10 years in the real estate market will be shaped by Baby Boomers moving from other parts of the country and bringing their cash. There are 70 million baby boomers in this country right now, and most of them are in a phase where they are making their last major purchases in the real estate market. You are losing ground by the minute if you do not have a lead gen and marketing pillar for this demographic.
There are big opportunities here.
Prediction #4 – Hold (rent) and move up will be the best strategy for your local sphere/past clients for their future wealth building.
If you have a client who has purchased their home in the past 5 years when interest rates were great, you may believe they are locked in.
Happily Stuck: They like their home, love their interest rate, and lack a compelling reason to move.
Some of them have seen 50%+ equity growth and/or have refinanced into a great rate in the 5+ years since they’ve purchased. They may ask, “why would I ever sell this house?” You probably shouldn’t sell this house!
This percentage of people has fallen into what many investors consider ideal – carrying low-cost, long-term debt. For anyone with a mortgage interest rate below 4%, the best strategy is to hold the house and rent it as a long-term rental. They can take the spread between what they can rent for and what they pay per month to carry the home to move up into a better home. This net positive cash flow offsets the temporary 7% interest rate they would pay for their move-up home.
The strategy, simplified.
Move into a better house and keep house #1 as an investment property. Refinance house #2 in the next 2-3 years.
We recognize this scenario is not ideal for everyone, though a large percentage of your database has decided they will stay because they have not considered this wealth-building strategy.
When NAR® asked homeowners who recently purchased their homes how long they plan to stay in their current homes, the median answer was 15 years. Historically it has been 7-10.
Identify the happily stuck people in your sphere. Have conversations with them about using their current home as a wealth-building vehicle while growing their real estate portfolio. Most people likely wouldn’t consider this for themselves. Educating your past clients and sphere about this strategy for building future wealth is an opportunity for you to win.
Prediction #5 – In most parts of the country, inventory will remain a challenge for years.
Will inventory remain low and a challenge for many years? We predict yes.
Here’s why…
Experts believe our country is currently underbuilt.
It would take approximately 6 million new units to achieve an inventory balance in the US housing market. How long would it take us to get there? The answer is roughly a decade. At best, 5 years.
Over the next 5-10 years, the trend is that we’ll continue to be underbuilt as a country. Your greatest opportunities during this time will be your relationships with land developers, investors, smaller homebuilders, and other land acquisition specialists.
Resale inventory:
79% of current homeowners have a fixed MRI below 3.75%. (Morgan Stanley) They love their home, and they love their interest rate.
We need to be more creative in finding motivated sellers. Life circumstances include relocations, marriage, family growth, divorce, death, retirement, cross-country job transfers, etc.
• Where are these motivating factors within your sphere of influence?
• How can you leverage your relationships to find more of these people?
• How would you find an inbound migration opportunity?
If your business is mainly past client and sphere of influence based, you’ll have to look in places different from where your business has historically come from. We encourage you to build pillars in your business to find and serve relocation and inbound migration business.
Final Thought
There are three things you can do right now to help you outpace the market:
• Refresh yourself on the fundamentals of supply and demand to educate buyers and sellers about opportunities that exist for them.
• Determine what activities will help you gain more market share. (We can help!)
• Focus on your mindset and effort as you put in the work required to win.
Everything you are doing now will position you ahead of those waiting for the fog to clear.
Be Elite!
Bill, Debbie, & The MEC Team
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