The economy remains on track as we head into the closing months of 2024, with inflation subsiding under the Federal Reserve’s tight management and employment remaining surprisingly resilient, though softening in recent months.
On the real estate front, high interest rates and low inventory have stymied the industry, with new single-family home sales plunging 11.3% in May and existing sales falling to an annualized rate of 3.89 million in June, a two-month period that normally sees accelerated buying trends.
The hoped-for rate cuts by the Federal Reserve that might have given the market a boost in the coming months have not materialized, with Treasury Secretary Jerome Powell announcing on July 31 that the federal funds rate would stay put at 5.25-5.5% for the near term, while holding out hope that there may be some downward movement before years’ end.
“FOMC participants wrote down their individual assessments of an appropriate path for the federal funds rate, based on what each participant judges to be the most likely scenario going forward,” Powell said in his report. “If the economy evolves as expected, the median participant projects that the appropriate level of the federal funds rate will be 5.1% at the end of this year, 4.1% at the end of 2025, and 3.1% at the end of 2026. But these projections are not a Committee plan or any kind of a decision.”
In his comments, Powell acknowledged that while the Fed is not yet confident enough to pull back from their efforts to control inflation, reducing policy restraint too late or too little could have an undue negative impact on economic activity and employment. That fear seemed to come to fruition when the July jobs report came in weaker than expected, sending Wall Street into a tailspin on August 2nd as fears of recession escalated in the financial community. However, markets have largely recovered since that drop.
In a reaction to the U.S. Commerce Department report on Q2 GDP, MBA SVP and Chief Economist Mike Fratantoni acknowledged several components in the report indicating a potential slowdown for the economy but also pointed to positive signs in the recent inflation data that he hoped “would provide enough confidence for the Federal Reserve to cut rates in September.”
While that remains to be seen, consumer confidence, interest rates, home sales, and new home construction remain in limbo, subduing hopes for any substantial real estate boost this year.
Consumer confidence shows signs of improvement
Dana M. Peterson, Chief Economist at The Conference Board, said that consumer confidence increased in July but remained in a narrow range that has prevailed over the past two years. “Even though consumers remain relatively positive about the labor market, they still appear to be concerned about rising prices and interest rates, and uncertainty about the future; things that may not improve until next year,” she said.
Interest rates staying put
It remains to be seen if a slowing economy will kickstart a movement towards lowering fed funds rates in the near term, but interest rates have remained in the sub-7% range this summer after reaching 8.5% in October 2023. According to the Freddie Mac economists’ July outlook, interest rates are expected to stay above 6.5% through the end of the year. Fannie Mae is also forecasting interest rates to remain at 6.8% through the end of the year, falling back only slightly to 6.4% in 2025, leaving little hope for the recovery that was so optimistically anticipated at the outset of the year.
Home price growth could pull back
According to the July 2024 commentary from the Fannie Mae Economic and Strategic Research (ESR) Group, home price growth in the second quarter was stronger than previously anticipated but will likely moderate soon, closing 2024 and 2025 at annual rates of 6.1% and 3.0%, respectively. The CoreLogic HPI Forecast concurs, indicating in its July report that home prices are expected to rise only 3% on a year-over-year basis from May 2024 to May 2025.
New home sales soften, existing home sales improve slightly
According to the U.S. Department of Housing and Urban Development and the U.S. Census Bureau, sales of newly built, single-family homes in June fell 0.6% to a 617,000 seasonally adjusted annual rate from a slight upwardly revised reading in May. The pace of new home sales is down 7.4% from a year earlier.
Jing Fu, NAHB director of forecasting and analysis, reported in July that new home inventory in June remained elevated at a 9.3 months’ supply.
“At the current building pace, there is still a long-run need for more construction because existing inventory remains relatively low,” he said. “Due to a lack of resale homes for sale, the combined inventory for new and existing single-family homes remains lean at a 4.7 months’ supply, according to NAHB estimates.”
After a lackluster May and June, pending home sales rose 4.8% in June, according to the National Association of Realtors, but the numbers remain low compared to past years.
Broader outlook murky
Across the board, economic and housing forecasts remain tentative and conservative, as economists keep an eye on a host of uncertain elements, including the volatility of the global economy, the Federal Reserve’s tight fiscal policy, a jittery stock market, and an era of consumer pessimism. However, should the Federal Reserve begin interest rate cuts in September as hoped for, many of these issues could ease considerably, opening the door for a more promising final quarter.
Calling cybersecurity “the ultimate team sport,” the FBI’s Internet Crime Complaint Center (IC3) emphasized its ongoing commitment to working with local law enforcement and private industry to combat evolving cyber threats in the U.S. in its recent 2023 Internet Crime Report.
The report, released in March, highlighted investment fraud and business email compromise (BEC) fraud as the two most expensive fraud types in 2023, with investment fraud increasing from $3.31 billion in 2022 to $4.57 billion in 2023 — a 38% increase, and BEC logging 21,489 complaints amounting to $2.9 billion in reported losses.
“Today’s cyber landscape is threatened by a multitude of malicious actors who have the tools to conduct large-scale fraud schemes, hold our money and data for ransom, and endanger our national security,” the FBI noted in its executive summary. “The FBI continues to combat this evolving cyber threat. Our strategy focuses on building strong partnerships with the private sector; removing threats from U.S. networks; pulling back the cloak of anonymity many of these actors hide behind; and hitting cybercriminals where it hurts: their wallets, including their virtual wallets.”
IC3’s Recovery Asset Team (RAT), established in 2018 to facilitate the freezing of funds involved in cybercrime, was able to initiate the Financial Fraud Kill Chain (FFKC) on 3,008 incidents in 2023, with potential losses of $758.05 million. A monetary hold was placed on $538.39 million, representing a success rate of 71%.
In its report, the FBI emphasized the importance and value of victims reporting cyber incidents to IC3.
“Your reporting is critical for our efforts to pursue adversaries, share intelligence with our partners, and protect your fellow citizens,” the FBI noted. “Cybersecurity is the ultimate team sport, and we are in this fight together.”
For professionals involved in real estate transactions, RAT is a significant ally, as the organization has developed the deep insight and resources needed to identify, track and convict cyber criminals.
By creating a strong liaison between law enforcement and financial institutions, RAT is able to assist in the identification of potentially fraudulent accounts, stay at the forefront of emerging trends, and foster a symbiotic relationship where information is shared.
New concerns emerge
The IC3 report noted increasing concern for situations where fraudsters prompt victims to send wires directly to third-party payment processors. Funds are quickly dispersed in such cases, making it more difficult to recover the money.
The FBI is also seeing an increase in fraudsters using custodial accounts at financial institutions or cryptocurrency platforms, where the funds are quickly swallowed up.
“With these increased tactics of funds going directly to cryptocurrency platforms and third-party payment processors or through a custodial account held at a financial institution, it emphasizes the importance of leveraging two-factor or multi-factor authentication as an additional security layer,” the agency noted. “Procedures should be put in place to verify payments and purchase requests outside of email communication and can include direct phone calls but to a known verified number and not relying on information or phone numbers included in the email communication.”
Other best practices include:
Carefully examining the email address and URL
Reviewing the wording and spelling in the correspondence
Refraining from clicking on links requesting you update or verify account information
Refusing requests to supply login credentials or personal information via email
Training employees on the red flags of fraud
Providing staff with ongoing training on how to handle suspected fraud
Wire fraud guidance
As in past years, the FBI reminded real estate professionals involved in wiring funds to put in place strict verification measures should a wire change be requested during the course of a transaction.
In addition, the FBI emphasized the critical need for title agents who are victims of wire fraud to act quickly when the fraud is detected, advising they contact the originating financial institution to request a recall or reversal and a Hold Harmless Letter or Letter of Indemnity.
They also encouraged victims to file a detailed complaint with www.ic3.gov providing as much data as possible to broaden the organization’s ability to track cybercriminals.
Ransomware on the rise
Ransomware incidents were also on the rise in 2023, with 2,825 complaints reported and losses up 74% from $34.3 million to $59.6 million.
In its report, the FBI emphasized that it does not encourage paying the ransom since it will effectively embolden criminals to target more victims.
“Paying the ransom also does not guarantee that an entity’s files will be recovered,” the FBI reminded. “Regardless of whether you or your organization decided to pay the ransom, the FBI urges you to report ransomware incidents to the IC3. Doing so provides investigators with the critical information they need to track ransomware attackers, hold them accountable under U.S. law, and prevent future attacks.”
Light Gray Divider Line
At Alliant National, we are committed to keeping you updated on the latest cybersecurity threats and providing you and your staff with information and tools to help protect your customers and your agency. SecureMyTransaction from Alliant National is an advanced fraud prevention solution built exclusively for independent title professionals. The system helps agents avoid risks posed by wire fraud, identity fraud and vacant property fraud by automating the information you need to move transactions forward with confidence. SecureMyTransaction leverages AI technology that covers and crosschecks:
The U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) issued a Notice of Proposed Rulemaking (NPRM) on Feb. 7 to expand its efforts on a permanent basis to combat and deter money laundering through the residential real estate sector.
According to the FinCEN announcement, the proposed rule would require professionals involved in real estate closings and settlements to report information to FinCEN about non-financed transfers of residential real estate to legal entities and trusts.
“Illicit actors are exploiting the U.S. residential real estate market to launder and hide the proceeds of serious crimes with anonymity, while law-abiding Americans bear the cost of inflated housing prices,” said FinCEN Director Andrea Gacki. “Today marks an important step toward not only curbing abuse of the U.S. residential real estate sector but safeguarding our economic and national security.”
Expansion of GTO efforts
Since 2016, FinCEN has issued multiple Geographic Targeting Orders (GTOs) requiring title insurance companies to file reports on all-cash purchases having specific dollar thresholds in designated geographic areas. These GTOs last for six months at a time. The most recent GTO was issued in October 2023 and expanded the list of affected venues.
According to FinCEN’s proposed rule, expanded reporting requirements would apply on a permanent basis across the entire country, without limit to specific geographic locations or a dollar threshold. The agency will accept comments on the new proposed rule for a 60-day period following its publication in the Federal Register, scheduled for Feb. 16. According to the American Land Title Association’s (ALTA) blog of Feb. 8, FinCEN has proposed that the final rule become effective one year after it is issued.
“We are still reviewing the proposed rule and will work to ensure that FinCEN considers the information they are collecting under the new Beneficial Ownership rule, among other things, so as not to be unnecessarily duplicative and also provide clarity regarding the obligations of all real estate parties under the rule,” said Diane Tomb, ALTA’s chief executive officer. “We also appreciate, and intend to continue, the ongoing dialogue with FinCEN to craft a tailored approach limiting the transactions that must be reported to those of the greatest concern and providing avenues to help reduce the compliance burden on title and settlement companies.”
Proposed reporting structure
The proposed rule would require reporting on transfers of single-family houses, townhouses, condominiums, and cooperatives, as well as buildings designed for occupancy by one to four families. Going a step beyond the GTOs, it would also require reporting on transfers of vacant or unimproved land that is zoned, or for which a permit has been issued, for occupancy by one to four families. Furthermore, both purchasing entities and transferee trusts are reportable unless a specific exception is applicable.
ALTA’s Feb. 8 blog summarizes reportable information under the proposed rule to include (but is not limited to) the following:
Name, address and taxpayer identification number (TIN) for the transferee and transferor.
Beneficial owner information for the transferee and anyone signing the transfer documents. (names, date of birth, addresses and TINs for those individuals).
Name, DOB, address and TIN for all transferors on title or the beneficial owners if the seller is an entity.
Address and legal description of the property.
information about the payments made by or on behalf of the transferee.
Information about any hard money or other lender not subject to anti-money laundering rules. That participated in the deal.
Individuals representing the transferee entity or transferee trust.
The business filing the report.
For a more detailed summary of requirements and exceptions under the proposed rule, please see the Fact Sheet published by FinCEN. At Alliant National, we are committed to keeping you updated on legislation and regulations that affect your business. Stay tuned for more, as the comment period progresses.
The overall economy is expected to fare well in 2024 according to experts from across the spectrum, but the dramatic drop seen in real estate sales, coupled with a virtually non-existent refinance market, will likely keep title orders depressed.
The macro-economic picture has certainly brightened in recent months as an anticipated recession failed to materialize in 2023. Now forecasters are increasingly calling for a “soft landing” in 2024. Goldman Sachs is especially optimistic, projecting U.S. GDP growth to hit 2.1% in 2024 compared to other economists who see growth in the 1-1.8% range for the year.
“It was fair to wonder last year whether labor market overheating and an at times unsettling high inflation mindset could be reversed painlessly,” said David Mericle, Goldman Sachs Research chief US economist, in a recent economic report. “But these problems now look largely solved, the conditions for inflation to return to target are in place, and the heaviest blows from monetary and fiscal tightening are well behind us.”
Joe Brusuelas, chief economist for RSM, a global network of independent assurance, tax and consulting firms, sees a slow first quarter for GDP, followed by an uptick to 1.8% in the second half of 2024 and accelerating into 2025.
“We expect that policy tailwinds from both the fiscal and monetary authorities will set the stage for strong productivity and growth in the years ahead as inflation eases back to a much more tolerable range,” Brusuelas said in his 2024 outlook report in the December edition of The Real Economy.
While all indications point to economic fundamentals being strong enough to keep the overall U.S. economy on stable ground in 2024, real estate sales are likely to remain stagnant due to low consumer confidence, high interest rates and lack of inventory. The refinance market will be in the same boat, as current mortgage holders will likely be unwilling to relinquish their low interest rates.
Consumer confidence
Viewed through a consumer lens, The Conference Board remains pessimistic, noting in its November forecast that the economy is likely to buckle early in the year, leading to a short and shallow recession.
“This outlook is associated with numerous factors, including elevated inflation, high interest rates, dissipating pandemic savings, rising consumer debt, and the resumption of mandatory student loan repayments,” they noted. “We forecast that real GDP will grow by 2.4% in 2023, and then fall to 0.8% in 2024.”
On the upside, consumer confidence was up 2.9% in November after three months of decline. The Conference Board Measure of CEO Confidence, however, fell to 46 in Q4 2023, down from 48 in the third quarter, as most business leaders are also anticipating a mild recession in early 2024.
Interest rates keep real estate in deep freeze
With interest rates hovering near 7% as we begin the New Year, prospective homebuyers will continue to face a double conundrum in 2024:
High interest rates have put many listed properties in the unaffordable range; and
Fewer homes are coming on the market as homeowners with low rates are staying put.
Some relief is on the horizon as homebuilders remain cautiously in the market to fill the supply gap. Many regions of the country are reporting strong new home sales, as homebuyers ready and willing to invest drift away from the paltry supply of existing homes to the new home market.
Freddie Mac statistics support this idea, with the GSE reporting that existing home sales were at their lowest level in 13 years in the month of September, but new home sales were showing remarkable resilience.
“New home sales have taken on increased importance for the housing market as the share of total home sales that are new increased to 16.1%, the highest share since 2005,” Freddie Mac reported. “The U.S. Census Bureau and U.S. Department of Housing and Urban Development reported that new home sales in September 2023 were at an annualized rate of 759,000, up 12.3% from August and 33.9% from September 2022. Overall, the inventory of new homes for sale has decreased 5.4% from last year.”
One nugget of encouragement came following the December FOMC meeting when the Federal Reserve signaled the possibility of interest rate cuts in 2024. However, any cuts are likely to have only a marginal impact on home sales in 2024, as these cuts will come in small increments through the course of the year. Moreover, rate cuts are far from assured, as Federal Reserve Chairman Jerome Powell said in his remarks in December that interest rate increases are unlikely, but not off the table.
“If the economy evolves as projected, the median participant projects that the appropriate level of the federal funds rate will be 4.6 percent at the end of 2024, 3.6% at the end of 2025, and 2.9% at the end of 2026, still above the median longer-term rate,” Powell said. “These projections are not a Committee decision or plan; if the economy does not evolve as projected, the path for policy will adjust as appropriate to foster our maximum employment and price stability goals.”
Navigating the market
Interest rates, while high, are not in uncharted territory and homebuyers in the past have learned how to navigate higher interest rates through a plethora of tactics.
Real estate agents and loan officers who are knowledgeable and consultative with their customers may find a way forward by assisting their prospective homebuyers with a range of options, such as:
Moderating expectations towards more affordable homes
Encouraging buyers to increase downpayments to lower their monthly payments
Educating borrowers about alternative products such as adjustable-rate mortgages
Negotiating seller concessions
Working with homebuilders to moderate costs in new home construction
Of course, none of these approaches mitigates supply constraints. Luring home sellers who are locked into mortgages in the 3-4% range back into the market is going to continue to be a challenge until overall rates begin to moderate.
Keeping an eye on fundamentals
As we enter 2024, mortgage, real estate and title professionals will have their eyes on some additional key economic fundamentals − both nationally and locally − as they navigate the slow market.
Job market
Although the job market has slowed in recent months, the outlook remains strong for stable employment in 2024, with some anticipation of a modest increase in unemployment. Regional variations are likely to have some impact on the real estate outlook in specific markets.
Consumer spending
According to Goldman Sachs, real disposable income is forecast to grow nearly 3% in 2024. Solid job growth, real wage growth and an increase in interest income could keep consumer spending strong. However, forecasters with the US Chamber of Commerce report that consumers are increasingly depleting their pandemic savings and increasing credit card debt to support a faster pace of spending.
Business investment
High interest rates that are hampering the real estate market are also likely to weigh on business investment in 2024. However, if recessionary fears continue to abate, this may increasingly become a non-issue in 2024.
Final thoughts
If interest rates begin to moderate in the latter part of 2024, real estate sales could improve. In fact, there’s evidence that Millennials who have delayed household formations and homeownership could, at some point, represent a source of pent−up market demand. However, the specter of even a mild recession coupled with diminished consumer savings so necessary for a downpayment, growing credit card debt, lack of affordable housing, and high interest rates could delay a real estate market comeback well into 2025, especially for first-time homebuyers.
From global economic trends to local housing affordability, numerous factors promise to shape the real estate market heading into the final quarter of the year. In general, the economic outlook both globally and within the U.S. remains subdued as we approach 2024, with many forecasters highlighting inflation and monetary policy as the drivers.
The Conference Board has predicted global GDP to grow by 2.9 percent in 2023, slowing to 2.5 percent in 2024. Emerging economies are expected to fare better than the U.S. and Europe, which are both anticipating lackluster performances once all is said and done this year. Although the U.S. economy has been surprisingly resilient in the aftermath of the pandemic, boasting strong employment numbers and healthy consumer spending, the Conference Board is anticipating a short and shallow recession in 2024, largely due to high interest rates, ongoing inflation, mounting consumer debt and dissipated consumer savings.
All of these factors are likely to prey on the housing market as well, and may serve to keep new homebuyers out of a market that has become increasingly unaffordable due to escalating interest rates and stubbornly limited inventory, which has kept prices elevated.
Chilly Q4 housing market
The housing market typically slows in the fourth quarter as buyers step away amid the approaching holidays. However, many industry pundits are predicting housing sales to slow faster than in years past due to the plethora of economic challenges homebuyers are facing.
In its September outlook report, Fannie Mae noted that mortgage origination activity had slowed to levels not seen since 2011.
“The new home market, which showed surprising strength over the first half of 2023, due in part to a limited inventory of existing homes for sale, may now be taking a breather,” Fannie Mae reported. “We forecast total home sales to be around 4.8 million in 2023, which would be the slowest annual pace since 2011 and 4.9 million in 2024. Similarly, our expectation for 2023 mortgage originations was downgraded from $1.60 trillion to $1.56 trillion in 2023 and from $1.92 trillion to $1.88 trillion in 2024.”
Further exacerbating the situation, some buyers are sitting out due to fears that housing has become overvalued and are hesitant to buy a home that may lose its value, if the market should take a sudden downturn. This is a regional reality, however. While the run-up in prices over the past few years in several western cities is ripe for a correction, many markets across much of the country increased at a moderate and sustainable pace, boding well for price stability.
New home sales decline
Despite builder concessions to offset high interest rates, new home sales continued to drop as the summer waned.
Sales of newly built, single-family homes in August fell 8.7% to a 675,000 seasonally adjusted annual rate, according to data from the U.S. Department of Housing and Urban Development and the U.S. Census Bureau.
“Builders continue to grapple with supply-side concerns in a market with poor levels of housing affordability,” said Alicia Huey, chairman of the National Association of Home Builders (NAHB) and a custom home builder and developer from Birmingham, Ala. “Higher interest rates price out demand, as seen in August, but also increase the cost of financing for builder and developer loans, adding another hurdle for building.”
As a result of all of these factors, builder confidence in the market for newly built single-family homes in September fell five points to 40, according to NAHB.
Consumer confidence mixed
With employment numbers on solid ground to date, consumers generally express optimism not only about their own jobs, but about available prospects in the larger market.
On the downside, the Conference Board noted in September that overall consumer confidence fell for the second month in a row in September with consumers expressing concern about rising prices, the volatile political situation and rising interest rates.
Interest rates: The wrench in the gears
Recognizing that the ongoing interest rate hikes are paralyzing the market, NAHB, the Mortgage Bankers Association (MBA) and National Association of REALTORS (NAR) joined forces in October to ask the Federal Reserve to refrain from further rate hikes.
In their October 10 letter to the Fed, the organizations pointed out that a primary source of inflation has been housing, highlighting that in July alone, shelter inflation was responsible for 90% of the gain for consumer prices.
Rather than exacerbating the problem with higher interest rates, the organizations suggested the federal government should be focused on facilitating the construction of affordable housing.
“Sustained, widespread or further increases in interest rates make this economic goal more challenging by limiting lot development and home construction, exacerbating housing supply, and pricing out millions of households from the goal of homeownership,” the letter said.
In September, MBA SVP and Chief Economist Mike Fratantoni acknowledged that the FOMC is still considering further rate hikes and in addition signaled that much-anticipated rate cuts would come later and slower than anticipated in 2024. But he remained optimistic that 2024 would see a turnaround.
“We expect that inflation will continue to drop closer to the Fed’s target, the job market will continue to slow, and that mortgage rates should begin to reflect that the Fed’s moves in 2024 will be cuts – not further increases,” Fratantoni said in his commentary. “This should provide some relief in terms of better affordability for potential homebuyers.”
Affordability
Limited affordable housing continues to plague the market overall. In part, homebuilders have begun to scale back the size and scope of amenities in their new builds to try to address the immediate issue of rising interest rates, but those efforts do not address the wider issue that can only be resolved by a concerted effort to address the problem on both the national and community level.
Affordable housing advocates offer several pathways to improved inventory, including incentivizing builders to build more affordable housing, increasing production of manufactured housing, addressing zoning and other restrictions that are preventing the creation of affordable housing where it is most needed, expanding the National Housing Trust Fund, and increasing resources for Federal affordable housing programs. The continued strength of the economy overall bodes well for a brighter 2024 for the housing market. However, the pace of recovery hinges on the FOMC effectively meeting its target to curb inflation, allowing interest rates to retreat. Concurrently, industry groups, local communities, and the federal government must tackle the pressing issue of housing affordability.
This blog contains general information only, not intended to be relied upon as, nor a substitute for, specific professional advice. We accept no responsibility for loss occasioned to any purpose acting on or refraining from action as a result of any material on this blog.
Let's Connect
Discover more stories and conversations on our social media networks, or drop us a line on our contact page.
The Independent Underwriter for the Independent AgentSM
