Over the past year, with the Federal Reserve continuously raising interest rates, the US real estate market has entered a "deep freeze" state. Not only do buyers leave to observe, but sellers are also particularly reluctant to sell.
Morgan Stanley Chief US Economist Ellen Zentner recently stated that the fate of the US real estate market will change next year.
Zantner stated in a recent market podcast (BLOG) that the increase in housing affordability is expected to revive the largely frozen housing market this year.
"We expect housing sales to remain weak in the first half of next year, but housing sales activity is expected to rebound in the second half and even in 2025, mainly because people's affordability will improve," she said. She also predicts that the increase in housing supply next year will drive this transformation.
Over the past year, with mortgage interest rates soaring, not only home buyers but also sellers have been watching, which has led to a tight inventory in the housing market. Existing homeowners are unwilling to sell their properties because they want to lock in the low interest rates they had years ago when financing for buying a house.
Due to a decrease in the supply of second-hand houses in the market, newly built houses have always been the main source of new supply. Morgan Stanley expects stronger housing construction activity next year.
"As inventory growth offsets demand growth, housing prices are expected to moderately decline. By 2025, as interest rates decrease, sales of second-hand homes should also see growth," Zantner added.
The Federal Reserve may start a rate cut cycle in June next year
This year has been an exceptionally difficult year for the US real estate market. Affected by the soaring yield of US treasury bond bonds, the mortgage interest rate hit 8% in October this year.
Despite the continuous increase in housing loan costs, housing prices remain high due to tight housing supply.
The good news is that the US mortgage interest rate has declined recently, because the hope that the Federal Reserve will soon turn to cut interest rates has led to a sharp drop in treasury bond bond yields.
Freddie Mac stated in a statement last Wednesday that the average interest rate on 30-year fixed rate loans was 7.29%, lower than the previous week's 7.44%. The four consecutive weeks of decline bring a glimmer of hope to potential homebuyers who are waiting for the market to turn in a favorable direction.
Zantner stated that by mid-2024, as inflation continues to slow down, the expectation of interest rate cuts will become a reality.
She expects the Federal Reserve to cut interest rates by 25 basis points for the first time in June next year. Interest rates will be lowered by another 25 basis points in September. Starting from the fourth quarter of 2024, the Federal Reserve may cut interest rates by the same amount at each meeting, ultimately lowering the real interest rate to 0.4% by the end of 2025.