What is happening to the “Best Laid Plans” for Austin’s real estate market in 2024?
What a difference a month makes.
By now, we Austin Realtors thought our real estate market would be humming along in top gear. Why? Economic data combined with well-scripted messaging from the Federal Reserve pointed toward a second-quarter housing take-off. How so?
At the start of 2024, The CME FedWatch Tool projected a quarter-point interest rate cut arriving in March. Just in time to lower mortgage rates for a springtime home-buying spree. However, at the March 21 meeting of the Federal Reserve, Chairman Powell announced rates would remain the same. There would be no cut.
How did the markets respond? The stock market hit an all-time high having gained 30% in five months. The CME FedWatch Tool jumped from 59% to 74% probability for a June rate cut. Even the bond market seemed to shrug its shoulders. Why? First, there was a change in the Fed’s economic forecast for the year. Gross Domestic Product (GDP) growth was increased from 1.4% to 2.1%. In other words, the economy was humming along in top gear even if the real estate market was idling by the side of the road. Furthermore, and this is important, the Federal Reserve still planned three rate cuts by the end of the year. The message we Realtors heard? The springtime home buying frenzy would be delayed a few months.
And then came April.
As if on cue, April Fool’s Day brought a sudden down draft in the bond market. Stocks started wobbling on the 4th when Minneapolis Federal Reserve Bank President Neel Kashkari stated, “If we continue to see inflation moving sideways, then that would make me question whether we need to cut rates at all.” Six days later, the consumer price index (CPI) for March arrived with smoking tires. Year-over-year inflation jumped 3.8%. It extended a streak of hotter-than-expected inflation data to a third month.
What were the inflationary drivers? Highlighting the list included:
Housing and fuel.
Medical services.
Transportation (think airfares).
Recreation costs.
Personal care items.
The cost of auto insurance rose 22.2% year-over-year as well as increasing 2.6% from the prior month.
Where are we now?
Last Tuesday (April 16), Chairman Powell walked back his “three rate cut” promise from a month earlier. And now? If higher inflation persists, the Fed can maintain the current level of interest rates, in a range of 5.25%-5.5% “for as long as needed.”
One other factor must also now be added to the economic climate: geo-political tensions in the Middle East. Since I have limited understanding, I will not comment. However, such conditions do create a risk/off environment.
The results?
The risks for the Federal Reserve have been elevated. Advisors and investors have been preparing for three quarter-point rate cuts since last December. In the real estate sector, mortgage rates have returned to the 7% mark. The stock market is experiencing a correction similar to what it endured in August of 2023.
What now for Austin and Georgetown real estate?
Real Estate, like stocks and bonds, will always attract buyers and sellers. Homeownership continues to provide rich incentives and serves as a valid instrument in creating longer-term wealth. The contrast is as evident as comparing my dad to my husband’s father. My father invested in real estate all his life. He provided a secure financial future for our entire family. My father-in-law was a lifelong renter. He died in debt void of any assets.
This last month, two well-known financial personalities, who are as diverse as they can be, sounded a similar refrain regarding today’s real estate challenges: Dave Ramsey and Barbara Corcoran.
Dave Ramsey is a well-known author and blunt radio personality. He delivers hard-core advice on living debt-free and investing in appreciating assets (real estate) instead of depreciating ones (new cars). In an April 10 report, Ramsey stated, home “prices will go up…I promise you, you can look up this five years from now and you’re going to go ‘God, that old fart was right again.” In the same article, he warned against waiting for prices to drop. Why? Met-Life Investment Management predicted that institutional investors may control 40% of American single-family rental homes by 2030. Regarding high interest rates? Ramsey advised, “Marry the house, date the rate.” By buying, homeowners can build equity over time, benefiting from possible price appreciation instead of making continual rent payments to landlords like Blackstone.
Barbara Corcoran of Shark Tank fame, founded the Corcoran Group, a real estate brokerage firm in New York City which she sold in 2001. This past week, on Fox Business’ Cavuto’s Coast to Coast program, she addressed the current interest rate environment. “If rates go down just another percentage point – that’s what I’m hoping for by year-end – prices are going to go through the roof because everyone will come and buy. Everybody’s going to change the market.” Additionally, she added, “If you wait for interest rates to come down by another point, I don’t think you’ll gain – I think you’ll wind up paying more. I wouldn’t be surprised if real estate went up by another 8% or 10% if interest rates come down a full point.”