The real estate market seems to be in a lull, even as interest rates have started to drop. But why isn’t the market responding as expected?
Understanding Market Lag: The Rule of Macroeconomics
A fundamental principle of macroeconomics is that it takes time—typically a full quarter—for the market to fully respond to changes in interest rates. Think back to the initial interest rate hikes: the first increase might have made you uneasy, but the market held steady. Even after the second hike, many remained hopeful. However, by the time the third increase, a substantial 50 basis points, came around, worry began to set in. Despite these concerns, the market was still performing well, with the average home price hovering around $800,000. Fast forward to June 2022, and the market finally started to cool down, with a noticeable 24% drop in home sales compared to 2021.
The Snowball Effect of Lowering Interest Rates
Now, we’re seeing a similar pattern, but in reverse. While the effects of dropping interest rates might not be immediately apparent, they are building momentum, much like a snowball rolling down a hill. Initially, the impact seems minimal, but as the snowball gains speed and size, the effects on the real estate market become substantial and impossible to ignore.
The Missing Link: First-Time Home Buyers
So, what’s the missing ingredient in this equation? First-time home buyers. These buyers are crucial to the market’s vitality. The good news is that they are likely to return in full force by Q1 of 2025. If you’re a first-time home buyer, now is the time to get your finances in order. Pay off those small loans, improve your credit score, and save up a bit more. Also, read my blog before going to the open houses.
When you’re ready to make your move, give me a call. The market might be quiet now, but the tide is about to turn, and you’ll want to be ready when it does.
