• Real Estate News in Brief - January 2024

    Happy New Year! 2023 was a challenging year, but 2024 is already looking better for both buyers AND sellers. Mortgage rates have dropped 150 basis points, and the Fed could begin cutting short-term interest rates in the next few months.

    On Wednesday, the JOLTS report (Job Openings and Labor Turnover Survey) for November 2023 showed a continued ‘loosening up’ of the labor market. Total job openings dropped to 8.8 million (from 8.9 million in October). While that’s still a really big number, it is actually the lowest JOLTS figure we’ve seen since March 2021. [BLS]

    And then on Thursday, we got ADP’s private employment report, which sent mixed messages. Companies added a larger-than-expected 164,000 jobs in December 2023, led by the services sector (especially leisure & hospitality). But there was essentially no jobs growth in the manufacturing sector. [ADP]

    Wage growth also eased further to +5.4% YoY for job stayers and +8.0% YoY for job leavers. A year ago those figures were +7.3% YoY and +15.2%. So wages are still growing, they’re just growing a lot slower. [ADP]

    Case-Shiller: Home prices kept rising. On a seasonally-adjusted basis, national home prices climbed 0.6% MoM in October 2023, the 9th-straight monthly increase. 19 out of 20 big city indexes saw MoM increases (Portland posted a tiny decrease), and 13 set new all-time highs. Case-Shiller’s national price index has now risen 5.4% over the course of 2023. [S&P Global CoreLogic]

    But rents continue to fall. Rental rates usually fall (month over month) in winter — it’s a seasonal thing. But rents were down 1% year over year in December 2023, and have been in negative YoY territory for seven consecutive months. The vacancy rate of 6.5% is back to pre-pandemic levels, and will probably rise further given the record number of units currently under construction. [Apartment List]



    On the Case (Shiller) Again

    The Case-Shiller home price indexes for October came out just before the end of the year. The overall performance was very strong: +0.6% MoM and 4.8% YoY. That means that home prices have risen 5.4% in 2023 (through October). Which means that we’ll likely end up with gains of around 6% for the full year. (The average annual growth rate in the Case-Shiller index over the last four decades has been about 4% — something well worth remembering!)

    Looking at the Big 20 city indexes, I noted the following:

    • Only 7 city indexes are still below their mid-2022 peaks: San Francisco (-8.2%), Seattle (-6.4%), Portland (-4.3%), Las Vegas (-4.2%), Phoenix (-4.0%), Denver (-2.4%), and Dallas (-2.3%).
    • Over the course of 2023 (through October), the strongest city indexes have been San Diego (+8.7%), Detroit (+8.3%), New York (+7.4%), Los Angeles & Boston (both +7.2%), and Chicago (+7.0%).
    • Only 1 city index didn’t rise MoM. Portland prices fell 0.1% MoM in October. This is the first ‘double dip’ we’ve seen.

    Mortgage Market

    Average 30-year mortgage rates moved up slightly the last few weeks of 2023, but remained well below 7%. The minutes from the last FOMC meeting made it very clear that the next question on Fed members’ minds is ‘when to start cutting?’ The jobs data this week has been mixed (although that could change today if the big BLS labor report surprises).

    The next Fed rate decision will be on January 31. The Fed Funds futures market is currently pricing in a 93% probability that the Fed will do nothing (no hike, no cut). But for the subsequent meeting on March 20, the probability of a 25 bps cut (0.25% or one-quarter of 1%) is now 60%.