By Timothy H Bartz – CMO – Global Property Systems
Bond Market and Interest Rates
The bond market, particularly the performance of U.S. Treasuries, plays a critical role in influencing interest rates. The recent plunge in yields on the benchmark 10-year U.S. Treasury note, dipping below 4.3%, reflects a shift in investor expectations. This decline in yields is tied to the optimism that the Federal Reserve may halt its rate hikes, with recent data indicating a cooling in consumer spending and the job market.
Economic Outlook for 2024
Experts at PIMCO predict that growth has likely peaked, but so has inflation. As price levels approach central bank targets in 2024, bonds and equities are expected to resume their typical inverse relationship. This scenario suggests that bonds may perform well if equities struggle, especially in a “post-peak” environment where developed markets face potential slowdowns or contractions.
Impact on Residential Real Estate Sales
Mortgage Rates and Housing Affordability: The bond market influences mortgage rates, which are a critical factor in the residential real estate market. As reported by Realtor.com, mortgage rates are projected to average around 6.8% in 2024, with a gradual decrease expected throughout the year. This decline in mortgage rates is likely to improve housing affordability, although it may reduce the urgency among homebuyers, leading to a stabilization in home sales at lower levels.
Home Sales and Prices: The residential real estate market is expected to experience a continuation of trends from the previous years. After the pandemic-induced surge in home sales, the market faced a downturn as mortgage rates climbed. In 2024, with easing mortgage rates, home sales are expected to remain stable but at lower levels than during the pandemic boom. Home prices are projected to adjust slightly lower, with the median price appreciation forecasted at -1.7% year-over-year.
Inventory and Rental Market:The inventory of homes for sale is expected to continue its downward trend, which began even before the pandemic. This lack of housing inventory, coupled with mortgage rates exceeding 6.5% for the calendar year, is likely to maintain a high threshold for existing homeowners to decide to move. Meanwhile, the rental market is anticipated to see a mild decline in rents, with new multi-family supply outpacing demand.
As the bond market heralds its best performance since 1985, it’s a beacon for shifting investor sentiment and broader economic trends. The insights of Global Property Systems become invaluable in this landscape, especially as we head towards 2024. The nuanced interplay between bond yields, interest rates, and the residential real estate market, as outlined in this analysis, is where their expertise shines. With bonds presenting attractive valuations and the real estate market adjusting to new norms, Global Property Systems offers strategic guidance for investors and homeowners to navigate this evolving terrain, ensuring informed decisions in both investment and real estate ventures.
