The overall economy is expected to fare well in 2024 according to economists from across the spectrum. However, real estate sales will likely remain muted through much of the year due to low inventory and elevated interest rates.
An anticipated recession failed to materialize in 2023, and now the economy is predicted to experience a soft landing in Q1 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, also sees a slow first quarter, followed by an uptick to 1.8% in the second half of 2024 and possibly 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, consumer confidence and real estate sales are likely to remain at a low ebb next year.
Consumer confidence
Looking at the economy through a consumer lens, The Conference Board is a bit more 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 freeze real estate sales
With interest rates hovering in the 7.5-8% range as we bid goodbye to 2023, prospective homebuyers will continue to face a double conundrum in 2024:
High interest rates have put many more available properties in the unaffordable range.
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.”
Fannie Mae sees existing home sales declining in the near term but surging again as 2024 progresses.
“Regardless of whether the economy manages a soft landing or enters a mild recession, the ESR Group forecasts mortgage rates in 2024 to retreat from their recent highs and average 6.8% by the fourth quarter,” Fannie Mae said in its November assessment. “As such, the ESR group expects home sales to begin to increase modestly over 2024 but to remain constrained by the likely persistence of the low supply of homes for sale.”
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 help keep the market afloat in 2024 by assisting their prospective homebuyers with a range of options, such as:
Backpedaling 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 concessions makes up for lack of supply. 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, which by all predictions is unlikely to happen until the latter half of 2024.
Keeping an eye on fundamentals
As we enter 2024, it will be imperative for business owners to keep their eye on economic fundamentals both nationally and in their own market as they navigate a slower real estate 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 should keep consumer spending strong.
Business investment
Higher interest rates are likely to take a toll on business investment, but if recessionary fears continue to abate, this may become a non-issue in 2024.
U.S. imports/exports
U.S. imports, which reached a zenith during the pandemic, have eased back in the past year. According to Goldman Sachs research, U.S. exports are expected to show some improvement in the coming year, as foreign economic growth accelerates, narrowing the trade deficit.
If interest rates begin to moderate in the latter part of 2024, real estate sales could improve under the strength of a wave of Millennials who are eager to move up to home ownership.
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.
Brick City Title, a full-service title insurance agency, is a loyal member of the Ocala, Florida, business community and dedicated to protecting the integrity of its customers’ transactions. This commitment served them well recently when a fraudulent transaction came across the desks of two of the agency’s title professionals. By working together and proactively communicating with other transaction stakeholders, the agency foiled the fraudster and received recognition through Alliant National’s crime watch program, which offers a $1,000 reward to agents who help prevent a fraudulent transaction from closing.
A suspicious package
When the package first arrived from the buyer, Brick City Title’s Gina Preston and Cherie Breitenbecker felt like it was a step in the right direction. For some time, their agency had been attempting to collect a deposit from a cash buyer of a residential property who claimed to be conducting the deal through a trust.
Any positive feelings quickly dissipated, however, once they opened the parcel. While the sales contract for the transaction was included, there was no form of currency. Instead, the buyer had tucked several postal stamps inside the package.
Alarm bells
Naturally, receiving such a bizarre item immediately set off alarm bells for Preston and Breitenbecker, especially since Brick City Title had repeatedly clarified to the buyer about which forms of payment the agency could accept. “If we feel or suspect anything unusual, we dig into available resources to resolve any possible fraudulent dealings,” said Preston, reflecting upon the incident. The next step for both professionals was to get on the horn to the buyer’s agent and reiterate which forms of payment were permissible – including a bank wire or a cashier’s check. A three-way call between the agent, Brick City Title and the buyer followed shortly after.
Any title agent who has been in Preston’s and Breitenbecker’s shoes will likely be able to predict what happened next. The buyer was incensed about being called out for the package and that Brick City Title was asking for more information about the trust involved in executing the transaction. After some back and forth, the buyer clammed up and ended the call. Preston, Breitenbecker and Brick City Title then took stock of what happened. A consensus quickly emerged that the whole transaction was highly suspect. The experience of other parties in the transaction further supported this view, with both the agent and seller having their own misgivings about the buyer’s behavior and demeanor.
The final step taken was to send the transaction materials to Alliant National and to subsequently cancel the transaction – much to the relief of all involved. “The seller wasn’t surprised this buyer was fraudulent,” said Preston when discussing the aftermath, “and was glad that we uncovered what we found and cancelled the transaction so that [they] could move on.”
Lessons learned
As with any fraudulent transaction, the experience of Brick City Title provides important takeaways. It showcases how agents must not only adhere to their companies’ policies and procedures but also follow their gut instincts. In this case, the buyer’s behavior alone was a clear red flag. “I had a couple of conversations with the buyer and the conversations were not pleasant,” Preston explained. “This person had a very demanding and insulting demeanor which put me on guard.” Brick City Title’s experience also highlights how successful anti-fraud efforts are bigger than the actions of a single party. Instead, having a strong working relationship with every transaction stakeholder is the key to safe and secure transactions.
Through interfacing with its partners in the transaction, Brick City Title gained additional information that backed up their original assessment. The transaction was indeed fraudulent, and the way it was prevented is an essential reminder of how stopping fraud requires all hands on-deck.
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.
According to PositivePsychology.com, as humans we are innately wired to pursue instant gratification. It’s natural for us to want good things, and to want them NOW. In fact, the urge for immediacy surely benefited pre-modern humans as their very survival often hinged upon making instantaneous decisions followed by taking immediate actions (e.g.“there’s a Tyrannosaurus rex headed my way … I’d betterrun and take cover!”). Humans today are not so different from their ancient ancestors – we, too, want immediacy, especially when it comes to the acquisition of wealth – whether that translates into the speed with which we receive funds or the swiftness with which we get title to real property under contract.
A Catalyst Corporate Credit Union blog reported that recent studies have shown “[a] staggering 70% of consumers express that having faster payment options from their financial institution is an important driver of satisfaction.” Thanks to advances in fintech, we now have a payment rail with two trains riding upon it to deliver that instant gratification. These two “trains” are Real Time Payments (RTP) and FedNow. They both move so FAST (almost instantaneously) that you and your customers can enjoy the ability to transfer funds 24/7, 365 days of the year in real time. With no waiting periods to transfer funds, just imagine how much faster your closings can take place – they can occur on holidays, weekends, and anytime convenient for you and the parties to the transaction!
Since 2017, RTP has been operated by The Clearing House (TCH), a consortium of member financial institutions; TCH’s RTP Network lists approximately 373 participating Financial Institutions (FIs).
On July 20, 2023, FedNow – the Federal Reserve’s interbank, instant payment infrastructure – went live; it launched with35 participating FIs, the U.S. Department of the Treasury’s Bureau of the Fiscal Service and 16 service providers, but it has the potential to service all depository institutions eligible to hold accounts at the Reserve Banks – currently estimated at more than 10,000 banks and credit unions! FedNow promises to be a real game-changer for the national economy, and especially for our industry.
Let’s talk about what FedNow can do for you. At this time, the FedNow Service supports account-to-account and consumer-to-business bill pay use cases. The maximum credit transfer amount is $500,000, but participating FIs have the option to provide a lesser amount (so you may want to check with the transferor’s FI in advance to make sure that you know its dollar limits). With FedNow, businesses and individuals can also request a payment (referred to as a RFP or “Request for Payment”) from a recipient. For example, with FedNow you can electronically send “Betty Buyer” a request for the balance of cash needed to close her transaction; there is even a “zero-dollar request for payment” pre-validation tool available to make sure that the end-customer has the ability to receive and act on the RFP prior to the biller actually sending one. We can anticipate that FedNow will be able to do even more in the future as its functionality is expected to increase in phases. To learn more about FedNow, and when and how it may be available for your use, please visit FedNowExplorer.org.
Lastly, if you want to know more about the BIG picture – RTP, FedNow, the Good Funds Laws, and Payment Service Providers (e.g. Venmo and PayPal) – and how these mechanisms and laws affect each other and work together, read our in-depth white paper, “Moving Money in a Real Estate Transaction.”
Navigating the complexities of our industry is indeed challenging, and it humbles me when independent agents confide in our team, sharing their concerns and ideas. One recurring issue you’ve brought to light centers around identity verification and the inherent risks involved in this key element of the transaction. I am delighted to announce that Alliant National has collaborated with Finigree, a leader in financial and payment technology solutions, and developed a robust identity verification system – SecureMyTransaction.
SecureMyTransaction is designed to equip you with the information you need about both buyers and sellers to advance your transactions with confidence. The technology applies a multi-factor identity verification process that cross-checks mobile device ownership and location, credit bureau information, bank account validation and ownership, payoff and proceeds verification, knowledge-based authentication, FinCEN and OFAC searches, along with Alliant National Underwriting Alerts.
With verified identity information at your fingertips, you’re empowered to protect against seller impersonation fraud, vacant property fraud, and deed and document forgeries. Scams like these can have profound consequences, including financial loss, reputational harm and regulatory sanctions. SecureMyTransaction is thoughtfully designed to help you mitigate these risks.
This solution – which is initially being offered exclusively to Alliant National agents nationwide – will be unveiled tomorrow at our annual Florida Seminar in Orlando. For those attending, we look forward to presenting this new tool to you and hearing your initial thoughts.
For those who will not be with us in Orlando, I hope you will take the opportunity to learn more about this solution built specifically for independent title professionals like you. You can visit SecureMyTransaction.com for details, or reach out to Alliant National’s Bob Grohol (BGrohol@AlliantNational.com, 440.228.0826) to schedule a demo.
As you familiarize yourself with this new tool, whether at the seminar or from afar, I invite you to share your thoughts and feedback. We have developed this system with you in mind, and your insights are invaluable to us. Please feel free to reach out to me, to Bob, or to any member of your Alliant National team.
