With fall approaching, real estate professionals are taking a pragmatic approach and waiting for buyers and sellers to gain more confidence.
Gary Mintz, a real estate agent with Berkshire Hathaway HomeServices Fox & Roach in Philadelphia, said business will be mediocre at best in the first half of 2024.
“I’m ‘hopeful’ that I’ll make it through the rest of the year OK, but who knows,” Mintz said. “I have a lot of things in the works, but I’m not counting my money until it’s in my bank account.”
Jared Antin, managing director of Elegran | Forbes Global Properties in Manhattan, said the real estate market will likely remain sluggish in the short term, but he predicts a significant increase in sales by next spring.
“In the second quarter of 2024, the Manhattan market saw a 3% decline in real estate contracts compared to the same period in 2023,” Antin said. “Despite this slight decline in demand, the market held steady and remained neutral due to a 2% decrease in supply. Currently, buyers have a slight advantage in terms of leverage and window of opportunity to obtain more favorable offers from motivated sellers.”
The luxury segment for homes over $5 million started the year strong but experienced a slight decline in the second quarter.
“This can be attributed to geopolitical tensions, volatile equity markets and uncertain expectations about the Federal Reserve’s interest rate policy,” Antin said. “High-priced real estate transactions are discretionary in nature, and so people are more likely to buy when they are more confident in the current climate. Conversely, in times of uncertainty, people are more likely to postpone large discretionary purchases.”
For the average home seller, the second quarter was mixed.
Despite rising real estate prices, profit margins remained unchanged in the second quarter.
According to a recent report from ATTOM, home sellers earned a 55.8 percent profit margin on typical single-family homes and condos in the U.S. during the second quarter. That figure remained largely unchanged even though the median home price rose to a new record of $365,000 during the spring sales season.
“The overall national trend masked significant differences between different regions and economic parts of the U.S. housing market, as the more affordable areas in the Midwest and Northeast generally performed better while others performed worse,” said Rob Barber, CEO of ATTOM.
Barber said the latest data showed that typical seller profit margins across the country fell slightly year-on-year, from 57% in the second quarter of 2023 to 56% in the same period this year.
But Barber said yields generally rose in about two-thirds of metropolitan areas in the Midwest and more than 80 percent of Northeast markets where there was enough data to analyze. The improvements were most noticeable in areas where median home prices fell below $250,000 in the second quarter.
“The reason for this is simple: In the Midwest and Northeast, home prices for sellers generally rose more in the second quarter than at the time of purchase,” Barber said. “The gap – the highest increases at resale versus purchase – resulted in the highest margin gains in these regions.”
This positive gap for sellers was evident in about three-quarters of the metropolitan areas studied in the Midwest and Northeast, but in less than 20% of the metropolitan areas in the West and South.
Some examples:
Cleveland, OH: The median sales price increased 8% annually to $215,000 in the second quarter of 2024. “That was well above the typical 2% annual increase that recent sellers paid when they originally purchased their properties,” Barber said. “The typical profit margin increased in this metro area from 53% in the second quarter of last year to 61% in the second quarter of this year.”
Rochester, NY: The median sales price increased 9% annually to $235,000 in the second quarter of 2024. “That was well above the typical 3% annual increase that recent sellers paid when they originally purchased their properties,” Barber said. “The typical profit margin increased from 66% in the second quarter of last year to 76% in the second quarter of this year.”
On the other hand, the median sales price in Seattle, WA, rose 7% annually in the second quarter to $740,000. Barber said that’s well below the usual 13% increase when new sellers initially purchase their properties, and the typical profit margin has dropped from 94% in the second quarter of last year to 85% in the second quarter of this year.”
Given stagnating profit margins and expected falling interest rates, will there be movement in the real estate market in the future?
Looking ahead, Antin said that while market confidence could increase with a possible Fed rate cut next month, that expectation is already factored into current market conditions. Interest rates have fallen slightly this summer compared to the spring.
For mortgage rates to drop significantly and for the housing market to regain momentum, further rate cuts from the Fed will be necessary. If mortgage rates fall to around 5.5%, we will see a transaction boom that exceeds that of 2021, according to Antin.
Of course, when interest rates fall, demand will also increase, which will encourage more sellers to consider entering the market.
“Narrowing the gap between current mortgage rates and available rates will lead to more transactions,” Antin said. “In addition, buyers and sellers will have more confidence in the market as uncertainties such as the upcoming election and the pace of rate cuts become more apparent.”
The Federal Open Market Committee will meet on September 17 and 18.
