My last word then of 2024 heading into 2025 is that of optimism.
While it’s felt a bit unpredictable at times, 2024 has overall been a good year for real estate and possibly just what we needed. Year to date (through October), 1,441 homes have sold in the Flagstaff area, just 58 homes more than last year. Mortgage rates are about 1% lower than 12 months ago and, on an average $400K loan amount, that puts monthly payments about $275 less per month for those entering the market now. The median sales price is only a modest 4.21% higher than this time last year, sitting at $594,000 vs. the $570,000 from 2023. The pace of the market on average is fairly calm but moving with a year-to-date median days on market of 61, only 7 days more than this time last year. These numbers, to me, show a stable, paced, upward-trending market. Definitely different from the breakneck speeds and sky rocketing prices of 2020-22.
Right in line with the Federal Reserve’s (FED) goal with inflation, we are seeing a normalized, sustainable pace return, though it’s critical to understand that things will never be the same. The chart (Annual Inflation vs. Cumulative) truly helps capture this concept. Yes, the red bar shows that the rate of inflation has drastically reduced. The speed at which goods increase is pacing much closer to historic normal, but the blue bar, the direction of the cost of goods is still upward. Deflation, the actual reduction of the cost of goods, is an entirely different event than what the Fed is currently working to accomplish. The same with housing depreciation, the rate of change has curbed significantly but, with the exception of small pockets throughout the country, housing continues to increase in value.
Millennial Wave
Despite 25- to 30-year high interest rates covering the last 24 months, this relative stability to rates and “stubbornness” of the market, according to the Fed, has stemmed from the low inventory and high demand for housing. These aren’t new concepts for those paying any attention to the housing market since 2020, and the impact of this imbalance will continue to have an impact in the years to come.
The chart (U.S. Birthrate per Year) helps illustrate that we have three years of a higher population of median home buyer aged individuals coming to market alone. If we were to zoom out, we will see that we haven’t faced a home buyer wave like this ever in our country’s history. The next thing even close to this was more than 50 years ago with the baby boomers. Couple that with Arizona being in the top 12 fastest growing states and demand becomes very real for our little town of Flagstaff where we have demands all across the board, from first-time home buyers, move up buyers, summer homeowners, short-term rental markets, long-term rental markets, etc. Not to be defeatist, but to help us grasp reality, the Fed has stated that this shortage of inventory against the strong current and future demand is something that neither they, nor anyone, has very much control over at this time.
The Big Rate Thaw
The only real factor keeping a lid on values despite higher demand and population growth has truly been interest rates. Despite improvement, we are well off what most would consider “normal levels,” but the good news is that we are heading the right direction and 2025 could mean a return to “normal” and that could start with a potential 5% handle on interest rates as early as the first or second quarter of 2025. Sure, a 5.99% isn’t the same as a 5.5 or 5.125% but sub-6% is a headline sure to move consumers and markets alike.
The two charts here show surveys of buyers and move-up buyers that help illustrate that to most, a sub-6% interest rate will be the big start to the big rate thaw. It certainly doesn’t hurt that we anticipate a more positive economic outlook and won’t have the looming weight of an election year slowing demand either. If the Fed has any say in it, which they do, they’ll work to have a more gradual rate reduction throughout the year and avoid any big dips and feeding frenzies, but this is all good news for those looking to enter or make a change!
My last word then of 2024 heading into 2025 is that of optimism. I know we can get hung up on things outside of our control, but we do still live in a town, state and country of American dreams. I believe in that dream of home ownership and I see hard working people make this happen month in and month out. Seek experts, make a plan, work like crazy to accomplish that plan and homeownership is truly within your grasp. FBN
By Chris Hallows
For additional information or to schedule an appointment visit ChrisHallows.Benchmark.us or call 928-707-8572. The Flagstaff location is 824 W Rte 66 Suite A-3.
Chris Hallows is the Branch Manager & Sr. Mortgage Advisor of Benchmark Mortgage Flagstaff.
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