Market Update Jan 9, 2024 - 2024 Rate Forecast, Rising Insurance Costs, & The Silver Tsunami!

Mike Mills (00:00:09) - Hello there everyone, and welcome to 2024. I hope you had a fantastic holidays, scored everything on your Christmas wish list and stayed safe during all the New Year's festivities. Hopefully, you survived all the fun family time that we look forward to as it approaches, but can't wait to see leave as the holidays trudge on. But now that the second week of 2024 is in full swing, most of us are back to our routines. And for me, it couldn't happen fast enough. Kids are back to school and I am back to the grind that I love. So welcome back to the Texas Real Estate and Finance Podcast. I'm your host, Mike Mills, a local Dallas Fort Worth mortgage banker, and it's time for your real estate market update for the week of January the 9th. Now, I didn't put out a market update last week because of the holidays, and because I've been going through a few changes myself as it pertains to my business, which I will be discussing in the coming weeks. Exciting stuff happening and I can't wait to tell you all about it, but just need a little more time for the dust to settle on a few things.

Mike Mills (00:00:59) - So big things on the horizon. Now for today's episode, we've got some valuable insights lined up to help you prepare for what looks to be a much improved 2024 real estate market. First, I'll share with you some current headlines impacting real estate locally and abroad. Then I'll dive into my mortgage rate forecast for 2024, so you can get your buyers and sellers prepared for what's ahead in this year's market. I'll also discuss how the rising cost of insurance is affecting your buyers ability to qualify for home loans, a critical issue to be aware of so you don't have issues right before closing. And lastly, I'll share a potential market shift on the horizon that could address the supply issue and possibly reduce housing costs, offering some relief to our struggling real estate market. But before we dive into all of that, I have a significant favor to ask. In 2024, I'm committed to taking our tiny little podcast to the next level, and you are all a vital part of making that happen. I need your help to grow our audience.

Mike Mills (00:01:52) - We already reach over 2000 unique listeners a month, and I want to double that in the next six months. So if you find this information valuable and want even more in depth coverage and high profile guests, please consider helping us spread the word. Share this podcast with your network, including agent friends, brokers, referral partners and clients. Anyone with a vested interest in our industry because every like, subscribe, share, comment and review contributes to our goal. I truly appreciate each and every one of you and your support, so help me make 2024 one of the best years ever and in turn, leave 2023 far behind in our rearview mirrors. I know we're all thrilled that that year is finally over. Now let's get on to the show. So headlines, headlines, headlines. Yesterday, the National Association of Realtors president, Tracy Casper, announced that she was stepping down, alleging she had been blackmailed. She just took over in August from the former president, Kenny Parcell, who resigned amid allegations of sexual harassment.

Mike Mills (00:02:42) - Casper claimed that she received a threat to disclose the past personal non-financial matter unless she compromised her position at Nar. She refused to do so, so she's stepping down. You see, the CEO of Nar also stepped down last year and was replaced. So the turnover at Nar has been pretty significant since all the lawsuits issue started. I'm really interested to see where all this goes because right now NAS in chaos. The Dallas Morning News reported last week that investors bought up almost 30% of the homes in Dallas sold in the third quarter of 2023, and Texas cities alone accounted for over half the US metro areas, where investors made up a large share of the home buyers. In fact, five cities in Texas made the top 20 list alone. So your buyers are competing with investors just like everybody else. Speaking of investors, a Wall Street firm recently bought 264 homes in one day from Starwood Capital in the Las Vegas area for $98 million. It's a part of a much larger deal between Starwood Capital and Invitation Homes of 1900 single family rental homes all across Texas, Florida, Phoenix, Las Vegas and Los Angeles.

Mike Mills (00:03:41) - Apparently, they're trading homes like stocks these days. Look, right now, large investors overall only make up about 3% of the total market. And a large investor is anybody that owns over a thousand homes in the portfolio. But these numbers are growing by the day and becoming a bigger and bigger concern for many in our space, especially in states like Texas and the others mentioned due to the big influx of people moving here, the latest jobs report last week showed positive numbers, but after you dig in a little bit, there are some really concerning stats, primarily that full time workers plunged 1.5 million in 1 month to the lowest we've seen since February of 2023. Part time workers soared to 762,000 to the highest on record, and multiple job holders hit an all time high of 8.56 million. So there's a lot of jobs out there, but maybe not great ones to support your family on, which is why you see more and more people taking on more than one job just to make ends meet. I'm gonna keep watching this because it could become a bigger and bigger issue down the line, and does affect people's ability to purchase homes and locally.

Mike Mills (00:04:35) - Here in Dallas-Fort worth, a supposed gas leak caused a hotel explosion in downtown Fort Worth yesterday, injuring 21 people. So far, the Sandman Signature Hotel was over a century old, and may have been what led to the possible gas leak issue, but right now, investigators are still looking into it. And if you think casinos aren't coming to Texas, don't tell Mark Cuban that he just recently sold controlling interest in the Mavericks and the deed to more than a dozen acres. Right. Across from American Airlines Center, where the Mavs practice, to the Adelson and Dumont families that also own casino gambling giant Las Vegas Sands Corp.. Now maybe Marc wanted to sell out and get his cash. Who knows? But he's a huge Mavs fan for life, and the only thing that I think could get him to ever sell his interest would be the possibility of a massive money payout down the line, and first rights to a share in a casino. Coming to Texas sometime in the near future would certainly be the type of cash cow that could cause Mark to want to sell.

Mike Mills (00:05:27) - But what do I know about the big place happening in our state? Not a whole lot, but Jerry Jones getting cozy with WinStar over the last couple of years. And now Cuban's selling the Mavs and land to casino moguls. Sure. Sounds to me like something big is on the horizon, but time will tell. All right, that's enough of the news. Now let's get down to my 2024 mortgage interest rate market forecast. So as of today when I'm recording this, interest rates are somewhere around 6.75 on average across the board depending on your situation as a whole. But what does 2024 have in store for us the rest of the way? Well, the fed is meeting at the end of this month on January 30th with no meeting in February, and then the last meeting of the first quarter of this year in March. And right now, many are predicting that the fed will make their first rate cuts in that March meeting. Why? Well, because of rent. Now, without diving too much into the weeds, rent plays a pretty big role in the calculation of the Fed's favorite measure of inflation, which is core CPI.

Mike Mills (00:06:18) - In fact, it's about 44% of the total calculation. And right now, multifamily apartments are getting overbuilt and driving down the cost of rent, which is good if you have to rent and don't have any other options. But because of the way they calculate the rent, it's blended with current rental contracts, renewals and new rental contracts. So this causes a lag in how long it takes for rent to come down. Overall in the calculation, if rent is trending downward and over the next three months, we should start to see that lag effect kick in. Since many of these rental contracts have expired and renewed at lower rates, driving the cost of renting down and therefore driving overall core inflation down as well. So because of this, the expectation is that CPI will begin to decline over the next couple of months, which is why many, including several fed members, expect to start making cuts to the rates in March. Now, most fed members anticipate at least 75 basis points in rate cuts this year, but some fed members think we might even need more this year.

Mike Mills (00:07:09) - And for 2025 and 2026, rates are expected to continue to fall even more, many expecting the fed funds rate to get back into the low twos by the end of 2026. Now, that doesn't mean mortgage rates will be that low. When we had 2% mortgage rates, the fed funds rate was just above zero. But that could mean that mortgage rates move back into the 4% range by 2026. Now, the only thing that would accelerate this is if unemployment got above 4.2% in the coming months, which would possibly prompt the fed to cut rates even faster. So for 2024, right now, we would expect mortgage rates to fluctuate somewhere between the high sixes to the mid fives, depending on how the job market and the fed behave. But don't expect prices to come down. We still don't have enough supply of single family homes on the market. See household formations in 2023, we're at 2 million and new builds were only about 1.5 million, so they already aren't building enough homes and there won't be too many people selling out of their 3% interest rates unless they absolutely have to.

Mike Mills (00:08:05) - But there might be some who want to sell. I got more on that at the end, but the expectation right now is that overall transactions should go up somewhere between 15 to 20% compared to 2023 for this year. And while that's not amazing, it's certainly better than the misery we all experienced over the last 12 months. So we're going to have slightly lower rates, slightly better demand, and we should have a slightly better housing market in 2024. And anything's better than what we just came out of. So good news across the board. Now my next topic everyone is feeling whether you own a house or not because it's affecting cars too. And that is the rising cost of insurance. So I'm going to touch on just a few things here. But on Friday, I'll be welcoming a local Allstate agent to come in and talk about the state of insurance and why costs have gotten so incredibly high. So don't miss that conversation because this affects everybody. Now, insurance costs are really starting to become an issue for housing, specifically C across the country.

Mike Mills (00:08:54) - It's becoming harder and harder to insure a home in the US and everyone is feeling the effects. So problem number one is that weather events are becoming increasingly more and more destructive. The cost is hitting insurance companies, which is putting them in a place to either not offer insurance to some parts of the country at all, which limits consumer options and creates higher costs, or raise premiums to such a level that the average person can barely afford it. Condos are getting way more expensive for insurance, investment properties are getting more expensive, and just your standard single family dwelling is costing almost 20 to 30% more than what it was just 12 months ago. In fact, premiums jumped on average 21% from May of 2022 to May of 2023. And that's after they had already gone up a hefty 12% just a year prior. In Texas, Farmers Insurance raised their premiums 25% across the board, with other insurers and other states being hit even harder. Farmers pulled out of Florida altogether, and USAA raised premiums by 37% in Arizona last year.

Mike Mills (00:09:50) - Now, this is occurring because of three straight years of underwriting losses, including 6.7 billion in 2022 alone. And the expectation is that this isn't changing any. Time soon, with weather events causing at least 1 billion in damages continuing to surge each and every month. In 2023, there were 25, including Hawaii's wildfires, which caused an estimated $5.6 billion in damages. And that's up from 18in 2022, which featured the Florida hurricane that was the second costliest hurricane in U.S. history, at 60 billion in damage. Now, the cost of repairs has driven a lot of these expenses because of inflation. In fact, just the run of the mill hailstorm across the Midwest is going to cost $1 billion in damages in general. But you also have migration because people are moving to states like Florida. In fact, 650,000 people have moved to Florida since 2020, driving up the population and eating more insurance for places with lots of weather events, more homes, more commercial properties means more places to insure. And this new, unexpected expense is causing many real estate deals to fall through.

Mike Mills (00:10:49) - Because the cost of insurance has gotten so high that it causes many buyers to not qualify for the monthly payment on the house they're trying to purchase. So higher rates, higher home prices, and higher insurance is all adding to the affordability crisis that we are currently facing in our country. Now, I don't know how this problem's resolved. There are some states that are enacting state based insurance for those who can't get coverages through the private sector, like Florida and Colorado, but I'm not sure if that's the best solution either. If your insurance is tied to the state, then you have even less control on what they're going to charge you if you can't get insurance anywhere else. It's just one more thing adding to the reason why many Americans more and more are unable to purchase a home because of the cost. Hopefully there's a path to fix this, but right now I just don't see it. Well, that was depressing. So let's move on to something a little more exciting now. As promised, there is a possible change in demographics in our country that might provide a mass of new listings over the next 5 to 10 years, and you may want to change your marketing activities to take full advantage of this upcoming shift.

Mike Mills (00:11:44) - People are calling it the Silver Tsunami. It seems a bit superfluous, but it does get the point across. So the idea is that right now, 10,000 people a day are turning 65, and by 2030, the entire baby boom generation will be over 65. And that's going to grow to make up 21% of the total US population. And right now, 55% of homeowners are over the age of 55. And since most people over 50 will often choose to downsize their home or move in with family or senior living, this could mean a lot of homes coming on the market in the next 5 to 10 years, and if you do your marketing right and target it correctly, you could capitalize on the next big wave of homeowners looking to sell their long time residents. Now, to be clear, this hasn't happened yet, and it may still take some time. You see, boomers are the wealthiest generation by good margin at this point and are increasingly staying in their homes longer instead of downsizing. And the majority of them don't have a mortgage or they have a really low rate right now.

Mike Mills (00:12:36) - So some experts don't expect a silver tsunami anytime soon, but at some point it will be coming our way. And if you want a future proof your business, there's no better time than now to get started marketing to the next wave of home sellers. And if you want to know the best methods of attracting this new wave of home sellers, feel free to reach out to me and I can walk you through some of our best practices that we've developed over the years. Happy to help out. Well my friends, that is all for today. I hope you're able to get some great market insight from today's episode, and I appreciate each and every one of you for sticking around all the way till the end. I'll be back on Friday with Brad Bingham, a local Allstate agent who we're going to be diving deeper into the rising costs of insurance and what it means for your clients. So until then, be good humans, stay on the grind and just keep swimming. I'll see you next week.