Please read that headline again and realize how what’s happening is completely illogical. It goes contrary to everything we were ever taught in Keynesian Economics.
The number of homes sold in January of 2024 increased 3.1% from the prior month. These numbers have been increasing for the last seven months in a row. Overall, 2023 was the worst year we’ve had in home sales since 1995, but things have rebounded.
In the last few years there have been around 5M homes sold annually. We’re currently at an annualized average of about 4M, so that’s still below the norm. But things are continuing to increase.
Real estate sold in the housing markets was strong across the board.
1 – Single family home sales were up 3.4%
2 – Condos, Coops, and Multifamily sales were either flat or close behind
This is happening while the price of a single family home increased to $379,100. That was a 5.1% year over year price hike.
Many might say that this is a direct response to interest rates going down. The average 30 year fixed rate had gone up to 7.79% in October of 2023. It was down to 6.6% last month, but has since risen to just under 7%.
Let me leave you with this.
When you talk to economists about this phenomenon, they get rather flustered because the markets aren’t responding to the interest rate changes as they should. They talk about several factors that could be influencing the current state of affairs.
1 – Current homeowners aren’t in a hurry to sell their homes because they don’t want to pay the higher interest rates. They’re locked into a 2% or 3% loan. As such, there’s a lack of inventory in the markets keeping prices higher.
2 – Remote work has had an impact on new home sales. Back in the olden days a few short years ago, when workers got a new job, many times they’d need to move. But in the past couple of years, much of this has changed.
3 – The overspending in the national economy is slowing down the effect of the Fed raising interest rates. We’re currently operating at a 6.9% deficit. It’s taking longer for the Fed’s actions to have their desired effect, but sooner or later the markets will respond.
I write about the home market because to many, your home is the most important investment you’ll ever make. If you’re going to have a successful retirement, making money off of your home is paramount to many.
Please don’t get suckered in by the people selling you a monthly payment. It’s the oldest trick in the book, and a fool’s notion which goes something like this.
If you’re currently paying $2,500 per month for your existing home or rental, then you shouldn’t have a problem affording a similar mortgage on a new purchase.
One of the things that happens in Chicagoland is that when you purchase a new property, paperwork on the sales price goes to your county. At that point your home’s property taxes are reassessed based on the new purchase price.
If you bought a home from someone who was getting a long-term resident discount and maybe also a senior citizen discount, then you’re going to get a nasty surprise in 18 months. Your property taxes might double or triple.
What’s that going to do to your monthly payment? Will that new home still be affordable? Will you still have the same quality of life when you’re giving up your two annual vacations just to pay a mortgage and scrimping to take your kids to Chucky Cheese?
Could you be lucky in the interim, have mortgage rates go down, and then be able to refinance into something that’s again affordable when accounting for the tax increase. Sure, it’s possible, but are you really ready to bet the house on that?
Be careful. Most people don’t make money on investments when they over pay.
We’re all going to get through this. Let’s get through it together.
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