While ups and downs are nothing new in the world of real estate, the residential market has experienced a particularly wild ride recently. Low interest rates and record sales during the pandemic gave way to 2023’s surge in rates, as the Fed attempted to curb inflation, with many homeowners choosing to stay in their current homes instead of taking on a new mortgage at a much higher rate. So, what should we expect as we head into 2024? Here are our predictions for Phoenix residential real estate in the new year:
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Reduction in interest rates
As inflation is starting to creep back down, we are already seeing a slight reduction in interest rates and expect to see a continued downward trend. While we wish we could predict what rates will do with absolute certainty, we can say that we expect to see rates drop below 7% by the second or third quarter of 2024. An interest rate drop will certainly spur more home sales.
Increase in home prices
For those waiting on the sidelines for rates to drop, we are advising them not to let this stop them from buying. There is a good chance if they wait to purchase their home until the middle of next year, the price of the home will increase by more than what they would save in interest payments over that six-month period – particularly in hot areas around the Valley. And of course, they can always refinance once rates do go down.
Less buyer negotiation
In 2023, buyers have been able to take advantage of the current market and negotiate concessions from sellers. However, as rates come down, there will be more competition, and buyers will have to adjust their expectations. This year’s negotiations will go by the wayside, as demand heats up.
Homes will sell more quickly
This year, sellers have had to reframe their thinking and learn to be patient for the sale of their home, waiting two, three, sometimes five months for a buyer. Next year, we see demand picking up. If rates get back into the 6’s, the market will get busy once again, with more showings, more offers, and less time on the market. In fact, the Mortgage Bankers Association reports that refinancing activity has already gone up nearly 20% just in the last week.
Strong demand for housing
Arizona will continue to draw movers from our neighboring states. Our state offers the beautiful weather, a lack of natural disasters, and business-friendly environment that has already brought so many new residents and will continue to do so. On top of that, the relocation of major employers will bring more people in need of housing. Some may be waiting on the sidelines and renting for the moment, but with a drop in interest rates, we expect to see more of these new Arizonans purchasing homes in 2024.
Authors: Tucker Blalock and Oleg Bortman are co-founders of The Brokery, a relentlessly local residential real estate brokerage with offices in Scottsdale, Arcadia, the Biltmore, and North Central Phoenix.
