Zillow and Redfin Top Economists Give Their 2024 Housing Market Predictions

Dave:
Hi, everyone and welcome to the BiggerPockets Network and Happy New Year. If you’re anything like me, you’re entering 2024 excited about the housing market and real estate investing, but you probably also have a lot of questions. The last year, both in terms of macroeconomics and in terms of the housing markets, performance have been a little bit up and down, it’s been a little bit confusing, and so even though there’s a lot of opportunity in 2024, there are also a lot of questions that remain unanswered. So today, we have a very special episode to help answer some of those questions. I am bringing in two renowned senior economists to discuss the state of the economy and the housing market. We’re going to make predictions about 2024, we’re going to provide all the stats and all the context you need to feel confident in building your portfolio.
And that’s true whether you’re trying to buy your first property in 2024 or you’re trying to scale up an already existing portfolio. So today, our two guests are Chen Zhao, who’s a senior economist at Redfin and Orphe Divounguy, who’s the senior economist at Zillow. And we’re going to get into all of the topics that are probably on your mind. We’re going to talk about things like inflation, housing prices, and of course, we will be talking about mortgage rates. Everyone always wants to talk about those. So by the end of this episode, you’re going to have a very good understanding of where we stand with the economy and the housing market today and where it is likely to be going over the course of the next year. So with no further ado, let’s bring on Chen Zhao from Redfin and Orphe Divounguy from Zillow.
Chen Zhao and Orphe Divounguy, welcome to our first ever economics round table on the BiggerPockets Podcast. We are so excited to have both of you and your extensive industry expertise with us here today because there are a lot of questions that I have and I assume that our audience have as well about the 2024 macroeconomic climate as well as the housing market. Today in the show, we’re going to start with the macroeconomic and then we’ll get a little bit more specific down into the housing market, things that everyone who listens to this show is probably interested in. But let’s just start with the economy in the broadest sense. So Chen, tell me what do you think is going to be happening with GDP in the coming year?

Chen:
All signs point to a slightly slower economic growth, rounding out Q4 and into 2024. So GDP now has Q4 running about 1.2%. The Fed is projecting that 2024, we’re going to see GDP growth about 1.4%. This is all kind of solid economic growth, but definitely is slower than what we’ve seen, which was kind of the goal, what the Fed was trying to achieve. That being said, there’s, I think, still a good amount of uncertainty heading into 2024. The Fed is pivoting right now, so especially after that December meeting, we really saw Fed that was saying, “We probably peaked and now, we’re looking to see what the path down looks like.” And the Fed, you should always remember, is like driving this car but doesn’t have total control of it. It’s kind of like when you play a video game, you’re like, “Is this steering wheel really working? I’m not really sure.”
But the Fed controls short-term rates really well, but the Fed has a lot less control over long-term rates. And that’s especially important if you’re thinking about housing like those of us here do. And we saw that this past fall when long-term rates, 10-year was up to 5%, mortgage rates shot up to 8%. The Fed didn’t do anything different. Powell never came out and said anything, that just sort of happened and that surprised the Fed. And I think probably, I would guess similarly that after the December Fed meeting, when Powell came out and gave a pretty dovish press conference, that he probably was always also a little bit surprised at the extent of the market reaction. I’m not in Powell’s head, but that’s what I would guess. So all of this just to say that the Fed is still the only game in town, but the Fed does not have perfect control over what is happening, and that makes it really hard to think about 2024. So even though we think that we’re probably going to have fairly solid economic growth, we should be aware that there’s a lot of risk.

Orphe:
Chen, I totally agree. I mean, the way I’d like to think of this is I like to think of headwinds versus tailwinds. And so sitting down, when you think about your own forecast, sitting down and kind of highlighting what the headwinds are and what the tailwinds are and trying to estimate, come up with which ones will dominate the other is how I kind of think about what’s going on. So we know for example that we have an election year coming up. We know that most election years, especially when an election is very contested and the country is somewhat polarized, Congress is polarized, then you have a ton more policy uncertainty. And I always say, when people are uncertain about the future, they sit on their wallets, they sit back, they wait, they pause, they don’t go out and buy a new car. And so usually, that’s disinflationary, that could cause economic activity to slow. And so that’s going to be a headwind for the US economy going into 2024.

Chen:
Yeah. And even taking that one step further, Orphe, I think your framework is perfect, when there’s so much uncertainty, it’s hard for consumers to plan what they’re going to do. It’s really hard for businesses to plan what they’re going to do because they don’t know when you’re heading into that election year, who’s going to win, who’s going to be in charge, who’s going to be making the rules, what are the policies and regulations I’m going to be facing a year, two years, three years from now? And that makes it really hard for businesses to say, “Well, now, I’m going to invest in X, Y, or Z.” And that does tend to be a little bit of a drag on the economy.

Orphe:
We could add to this, right? Being a little bit more specific, we got the Trump tax cuts set to expire. Probably not going to be a shift in terms of government spending into the next year, but potentially more revenue coming from the tax cuts expiring. And so maybe less borrowing. And that, of course, has an impact on yields and mortgage rates.

Dave:
We’re going to get the details of what Chen and Orphe see in their forecast for the housing market a little later on, and we’re going to get their pulse on the average US consumer right after the break. Welcome back, everyone. We are here with senior economists from Redfin and Zillow, Chen Zhao and Orphe Divounguy, talking about their predictions for 2024. You’ve talked about a little bit about headwinds, sort of the macroeconomic climate, the Fed. I’m curious your opinion on the state of the average American, average American household or consumer, because you do look at this broad macro data and you see GDP is fairly strong, you see a lot of positive indicators, but on a lot of sort of more micro levels and personal finance levels, and anecdotally too, you hear people are struggling, we’ve seen student loan repayments start, Chen, how would you describe the state of the average American consumer right now?

Chen:
I think that what we saw was that coming out of the pandemic, the government just funneled so much money into the economy, the consumer was doing really well, and kind of in a unprecedented way. And what we’ve seen and the starkest data that we had on that was just how much excess savings people had in their bank accounts coming out of the pandemic, just like actual cash that they had to spend. And what we’ve seen now is that, well, that excess cash is mostly gone at this point. So we see data from JP Morgan, from Bank of America, who can look at people’s bank accounts and we can see that’s pretty much at this point gone. And then we’re also seeing, like you said, more credit card delinquencies. So that’s a piece of data that’s coming out the New York Feds household debt and credit report where we’re showing that the transition into 90-day delinquency is now at I think something like 9.5% or something like that. And that’s elevated relative to historical levels, so that might be something to be concerned about as well.
And then also student loan repayments. So student loan payments were put on hold during the pandemic, they resumed in October. The total amount of payments that would need to be paid by consumers is estimated to be about $70 billion. So we think that’s about 0.3% of disposable personal income. So that’s not a huge amount, but enough to make a debt in people’s spending habits. So there are reasons, I think these are all reasons you might be thinking, well, consumers are probably weaker than where they were. But like so many things, so many different economic metrics and statistics that we’ve been watching since the pandemic, a lot of it I think is about, well, what is the change versus the level? So it’s like the consumer is weakening, but the consumer is also just fine. So because we were coming from such a strong standing that even if you are weakening a little bit, you’re still actually probably just fine. And we see this in many other metrics.
For example, we know that consumers are experiencing real income growth right now. Wages have been increasing a lot, so that is important. We also know that there’s a really strong labor market that is a huge tailwind for consumers. So right now, we think there’s probably 2 to 3 million more open jobs and there are unemployed workers. So this is a very, very strong labor market. And finally, you can look at, we know that credit card delinquencies are probably a little bit high. That’s mostly focused in certain types of consumers, those with worse credit, younger consumers. But then you also look at, on the other hand, mortgage delinquencies for example. Mortgage delinquencies are so, so low right now. So there’s a lot of data that also just shows that the consumer is pretty good right now. So I would say I’m not terribly worried about the US consumer, and I think this is all kind of very consistent with the broader economic message, which is that we’re kind of cooling, but we’re not in a area where we should be worried right now.

Orphe:
I totally agree. We’re cooling, but we’re probably better off than we were before the pandemic. If you look at debt servicing as a share of personal income, still very low. Roughly around where it was in 2019 before the pandemic. So you look on the surface, we’re doing well. Are we cooling? Yes. Are we feeling the pinch? Yes. But we’re doing much better than we were probably just three, four years ago. So now, I totally agree. I think that the consumer’s in pretty good shape still. Of course, there’s a distribution, so you’re going to have people at the bottom that are going to feel a little bit of pain still. But you look at the labor market and I think as long as people have jobs, the US economy is going to be okay.

Dave:
All right. So I think the theme that we’re hearing here for everyone listening to this is that the US economy is doing pretty well by most macroeconomic measurements right now, but Chen and Orphe seem to agree that we’re slowing down and so we might still continue growing. It sounds like both of you think that we’ll still remain positive in terms of GDP growth next year, and even though consumers might be in a worse position than they were this year or the previous year, that things are still decent in a historical context, both in terms of macroeconomic indicators and the situation for consumers.

Orphe:
So Dave, it’s hard to really say if we’re worse off than we were, right? Because if you think about, Chen alluded to this, wages adjusted for inflation have actually increased. They had been decreased, they decreased in ’21 and decreased in ’22 as inflation rose to roughly 9% midway through last year. Financial wealth, you look at the Fed report, financial wealth has actually increased. At the end of 2022, if you told me the stock market would’ve done what it did in 2023, I would’ve thought you were absolutely crazy. The stock market went on a tear in 2023, surprised everyone, and we’re finishing the year so strong. And so financial wealth also increased.
Housing wealth, we had this big dip where we thought, “Oh, my goodness. House prices are coming down.” And all of a sudden, house prices rebounded. Home equity is still near an all time high, prices have fallen in a lot of metros. Home equity still near an all time high for a lot of homeowners. A lot of these homeowners who bought before the pandemic were able to refinance at very low rates, so they have very low monthly mortgage payments. And so I look at this and I say, “Hey, this consumer, this average consumer, the middle class might actually be doing really well right now.”

Chen:
Yeah. It’s funny you say that, Orphe, because I totally agree with all these statistics you’re saying. All the metrics are great. And then it’s like we have this problem where everyone seems to have bad vibes about the economy.

Orphe:
Yes.

Chen:
Right? And everyone is super negative.

Dave:
Totally. That’s what I wanted to ask you. Yeah.

Chen:
Yeah.

Orphe:
That’s so interesting.

Dave:
So what is that, Chen? What do you attribute that to? And macro data classical measurements show that things are doing well, but it doesn’t seem that people feel the economy is doing well. So where’s the disconnect?

Chen:
Yeah, you’re absolutely right. And it does feel like there is a disconnect, right? Because just like Orphe said, it’s like, wow, your income is growing, you have so much housing wealth, you have whatever your portfolio is, it’s doing fantastic, yada, yada, yada. And at the same time, the Fed is taming inflation. So maybe we don’t need to worry about that anymore. So why are you worried, right? I think that a lot of it, I think there’s two things, I would say. One is that as economists, we always look at the median or the average, that’s the most accessible thing to look at. And the distribution is just really wide, you don’t have pockets of people who just have a very different experience than the median or the average person. And those people are real people, they’re real voters and they’re real people with real feelings. So that’s, I think, a lot of it.
And then the second thing I would say is just that even though the Fed seems like the Fed has gotten inflation tamed and inflation’s now going to be much closer to 2 to 3%, we have experienced a big price level jump and it takes a long time for people to psychologically acclimate to that. I was trying to, not to call out the Rockettes or anything, but look, I think it’s a fantastic show, but I was looking at tickets for the Rockettes and I was like, “Holy cow, that is really high.” And I was like, “Wow, I guess if it’s this percent, this percent, then it’s like it does make sense what the price level is, even if there’s not going to be further inflation in the future.” But for people, I think even though maybe they’ve seen their paychecks increase, they’re still experience that sticker shock when they’re seeing the prices and that’s a negative sentiment sort of thing. So those are the two things that I would point to.
And then on the kind of pockets of people who are not experiencing what the average or the medium person is experiencing, importantly for the housing market, I think we should think about people who don’t yet own a home. So we’re talking about housing wealth, all the people who refinanced, you have a 2% mortgage rate and you have so much home equity, but what if I never bought a home to begin with? Or a lot of Americans don’t own any stocks, so I don’t care if the S&P 500 is doing great. That’s not benefiting me at all. So I think that’s where a lot of these kind of bad vibes are coming from.

Orphe:
I absolutely agree with Chen. I think this is probably the… I get this all the time and I’m very active on social media and where you report on inflation coming down and people are like, “No, this is not true.” Because prices are higher than they were just a year ago. Right?

Dave:
Yeah. Well, if my parents are any indication of your ideas here, you’re absolutely right. I can’t have a single conversation with either of them where they don’t tell me the new price of every single thing that they’ve bought over the last couple of weeks. They just can’t fathom it. And I do think people also get confused between the idea of disinflation and deflation, that disinflation is the slowing down of price gains, but there’s not going to be, there’s very unlikely going to be deflation where prices actually get lower. So those two things are different concepts. But I think you’re totally right, Chen, that it takes a really long time for people to really get used to it. I feel, I look at all the data and I still look at and get sticker shock at a lot of the things I buy.

Chen:
Yeah. And not only are we not going to get deflation, you do not want deflation.

Orphe:
Exactly.

Chen:
If you get deflation, that means we are in really serious trouble because it almost seems counterintuitive. People are like, “Well, don’t I want prices to decline so I have increased real purchasing power?” But you don’t, because in an economy like that, no one would ever buy anything. If you could buy eggs cheaper tomorrow, why would you buy eggs today? And that is a really dangerous economic cycle to get into. So that’s why we aim for that nice 2% inflation.

Orphe:
And it also means the unemployment rate could soar if you’re not buying anything, businesses have no reasons to hire anyone. They might even lay off a lot of people. And so you end up losing your jobs.

Dave:
So we’ve talked about the broad macroeconomic economy and what’s going on and what you both think is likely to happen in the next year. But I’d like to shift the conversation more to the housing market because our audience here, most of them are active or aspiring real estate investors. And the million-dollar question for a lot of people is is it a good time to buy real estate? And I know there’s a lot of factors that go into that, but Chen, I’m just curious, can you give us, at the highest level, your outlook for the housing market next year?

Chen:
So I think I would say our top line is that the housing market in 2024, we see an improved picture for buyers, better circumstances for buyers. Most important reason for that is because we see affordability improving a little bit next year. So we do think that rates will be coming down. We’re seeing after the December Fed meeting already that the Fed is pivoting. We’re talking about rate cuts in 2024. There’s obviously an open question of how many, when are they going to come, but it really seems like rates are going to be on a downward path. Look, we’re not headed to the 3% pandemic era rates, but we’re heading to lower territory. So that’s going to be fairly significant for buyers and for sellers as well.
And then the second thing is we do see prices softening in 2024. So prices softening can be a little bit of a nuanced topic because, so generally, we’re talking about nominal prices, so that means not taking into account inflation. So 0% price growth is, for example, actually prices declining in a real sense because inflation is higher than 0%. So we really see prices either being flat in the 0% or falling maybe, 1% range. So that is improved affordability for buyers compared to what they’re seeing in terms of increases in their paychecks for both rates and prices. And then in addition to that, we see more inventory coming online. And that’s part of the reason why we see prices softening is because I think in our Redfin data, we’re seeing that customers who are contacting Redfin to have consults about listing their home, we’re seeing double-digit growth year over year in that, in the latest weeks. And that hasn’t turned into actual listings just yet. But even in the actual new listings data, we’re starting to see those ticks up in the last few weeks.
So we think there’s more coming down the pipeline. And the reason for all of this is I think people are getting tired of waiting. Our agents are telling us that the customers that they’re talking to are like they have been waiting for something to happen in the housing market because they want to divorce their husband, or they need to move for some other reason to… Because they want to be closer to their grandkids or something like that. Something more positive than divorcing your husband but-

Dave:
Okay, you heard it here first. Chen, are you saying the divorce rates are going to go up, interest rates go down, divorce rates go up?

Chen:
I would rather make it all on interest rates rather than divorce rates.

Dave:
Okay. We won’t.

Orphe:
I think the point is life happens, right? And life events are one of the major reasons people move in the first place, right?

Chen:
Yep, that’s right. Yeah. So I think people who are sellers are getting tired of waiting and they’re realizing that rates are never going back to 3%. And they’re just like… So they’re saying, you know what? I’m going, I’m selling, I’m doing the thing I need to do at this point. So that’s a much better picture for buyers. It means better affordability, plus you have more homes to choose from. So we do see a more optimistic picture for 2024 than 2023.

Dave:
That’s really interesting because you see, as you said, the most recent Fed meeting, which was in December, we saw this announcement that pushed down bond yields, mortgage rates started to fall a little bit. And I think the most immediate reaction from most real estate investors was, wow, this is going to kick off a big nother round of appreciation of home price growth because it’s going to increase demand. But I just want to make sure everyone here understands what Chen is saying, is that demand may go up, but if supply also goes up at the same time, prices could stay relatively flat and perhaps we could see softening prices, but we might also see an increase in total transaction volume, which would probably be very welcome news to any agents or mortgage lenders here who are listening to this. And that has sort of been my question about 2024, is rates may come down, demand’s going to come up, but I’ve just been curious about where supply is going to come from.
We’ll hear from Orphe on supply and demand plus more discussion on affordability, the mortgage rate predictions everyone wants to hear, and which markets to watch in 2024, all coming up after the break. We’re back with Orphe Divounguy and Chen Zhao. Chen just shared a possible scenario where we could see more supply and more demand in 2024. Orphe, do you see the same sort of situation where both demand and supply could increase a bit next year?

Orphe:
Totally, totally. And by the way, I’m the most optimistic member of the Zillow economic research team, and sometimes they laugh at me a little bit because I always see everything in a positive light. So new listings going up, up 3.1% year over year according to our data. And they were down a lot, especially in the spring when you were hopeful that existing homeowners would be putting their homes on the market, on the for sale market. They just didn’t show up. And now, we’re starting to see, if you look since about July of this year, new listings, the flow of homes coming on the market was pretty much flat and it’s now catching up. So I’m very optimistic. And like Chen mentioned, I think life events, but also preferences haven’t changed. That old house that you don’t want to live in anymore, you were sitting around just because a little bit of uncertainty. A ton of mortgage rate volatility, you don’t know what’s happening with the economy. And so you pause, you sit on your wallet, you wait, you don’t do anything.
But now, you’re starting to see things kind of normalize and now, you can adjust your budget. You can look at things and make sense of, oh, okay, well, now, I know where I’m headed. I still have my job. Things are looking pretty good. I know mortgage rates are not going to fall off a cliff anymore. I think a lot of people were sitting there thinking, “Hey, maybe mortgages are going to come down.” And we know mortgages are easing, but they’re not going to fall off a cliff. And I tell everybody, the only times we’ve seen mortgages fall off a cliff was the bursting of the dotcom bubble, the middle of the global financial crisis, and the start of a global pandemic. And we know mortgages are not going to fall off a cliff. They’re going to ease a little bit.
We may even see a little bit less rate volatility, especially if inflation continues to move towards the Fed’s target. The market will become less responsive to all the economic news like it has been in the past year. So all of that is going to be conducive to getting people out there again. Our data, Zillow data also shows that 70% of sellers end up buying again. Not 100%, 70%. So you’re going to have more supply from those guys than demand if you continue to see new listings come up into 2024. And so all of that together tells me, just like Chen mentioned, that you are going to probably see prices soften a little bit. New listings are no longer going to be a big drag on the housing inventory. And of course, I think… I’m optimistic. I think that might mean more transactions going forward.

Dave:
I appreciate that explanation. Orphe, you say you’re an optimist, so I just want to play devil’s advocate here for just a second and just get your opinion because I think there is a narrative or a common line of thinking that I hear that affordability is just so low right now that even if rates come down a little bit, prices are just too high and it’s somewhat… People feel, I think inevitable that prices have to come down because they’re just so much higher than they used to be. And you couple that with some of the things you said about perhaps a slowing economy, what do you say to that, I guess?

Orphe:
I think builders probably worry about that a little bit too. So they have a ton of homes under construction. Still, those homes are coming on the market. And of course, because there’s so many homes that are coming on the market, on the new construction side, you’re starting to see builder sentiment decline a little bit and you start to see starts. Why would I start a new project if I have a ton of units that are coming that I need to sell? And so all of that, I think we’re going to see. But just to give you an idea, yes, affordability is still a problem, but if you think about the fact that mortgage rates were lower than they are today, last year than they are today, and yet the average price cut for new construction hasn’t changed, it’s still about 6%. The share of listings of a price cut relative to last year is actually lower.
If people just couldn’t afford a home, and by the way, I have to say the housing market is local, so I’m talking kind of on average the US level. There are places that are absolutely unaffordable. You just absolutely can’t even… People can’t qualify. I’m thinking of the LA area, Riverside, California. I mean, they are places that are just out of reach for a lot of people. But just on average, you still have some demand out there. Demand has slowed, but demand still exceeds supply. And so that’s why I’m still very optimistic going forward. And I’m not the only one, right? We hear about Warren Buffett and new construction and the love for new construction going forward. So I’m very fairly optimistic that 2024 could be a better year because new listings have already bottomed in 2023.

Chen:
Yeah, I think the affordability question’s a really good one, and it’s also it’s one of the reasons why, Dave, you were saying, “Well, if rates are dropping, why won’t prices just go up more?” I said, “Well, actually, because I think affordability puts a cap on that because I think at some point, people just can’t afford to buy more.” But I think the affordability correction doesn’t have to come in the form of this big drop in prices. The 2008 style price drop, that only happened once and there’s a reason it only happened once and under very unique circumstances. So I think you can also see affordability improve in the form of a multi-year span of time where you see prices only being flat or up 1% or down 1% or something like that, where prices are just increasing less than inflation, but just a little bit less than inflation. And that is an improvement in affordability. And also, we do expect rates to come down as well. So a lot of the affordability issue in the last year has been a rates issue and not necessarily a price issue.

Dave:
I want to make sure everyone understands what affordability means in terms of the housing market. It’s basically how easily the average American can afford the average price home, or as Orphe accurately pointed out, this is also local, how easily someone in a particular market can afford that particular home in that market. And there are generally three sort of legs to this affordability stool. There’s mortgage rates, as Chen just alluded to, there’s home prices, and there’s also wages. So there are different ways that affordability can go up or down. It’s not just home prices.

Chen:
That’s the perfect explanation for it. And yeah, so the other thing that I would say that wouldn’t, I would say, point to not seeing a big price decline, is just like the tailwind, the demographic tailwinds for home prices and for demand. We know that millennials are still in this age where we need to buy homes, people are having kids, they need to buy homes. So there’s a lot of demand out there. And then we have Gen Z coming up. So a lot of demographic analysis really is showing this… We’re entering into these years of very strong home buyer demand. So even though prices are high, rates are still high, right now, there’s just a lot of need out there.

Orphe:
And Chen, you’re absolutely spot on. And you can add to that list. Population from abroad. You got a lot of new families coming from abroad. We finally reopened after COVID, where you had… Even a few years before COVID, immigration levels into the country had slowed. All of a sudden, we have more people coming into the country, and that actually turns into more families in addition, net new families, and that pushes the men higher.

Dave:
Well, thank you. That’s a very, very useful explanation. Since we’re talking about affordability. I’m sorry to do this to you both, but I have to try and get a prediction from each of you on mortgage rates. You can have a range. But Orphe, what do you think? Where do you think mortgage rates will be a year from now in December of 2024, if you had to guess?

Orphe:
Very, very difficult to predict. And you can see it. I mean, in the market reaction that we got, the market was pricing in four rate cuts, the Fed hinted at three and yet yields continued to fall. So Dave, unfortunately, I’m not going to give you a number, but I’m going to tell you that the way I think about it again is headwinds versus tailwinds. And the market’s very unpredictable, but we know going into next year we have all of these disinflation that’s going to help bring yields down.
Then you have the mortgage rate spread, which kind of depends on uncertainty. And that’s likely if we see less volatility going forward, that’s probably going to… In the markets, that’s probably going to shrink as well. At the same time, I mentioned earlier that we’re going to have a lot of policy uncertainty ahead of the election, in the summer of ’24, in the few months before in the election. That’s going to be a driving economic activity as well, and that’s going to be disinflationary. And so again, I expect yields to continue to ease, to continue to move lower. I don’t expect them to fall off a cliff, especially if the Fed can stick the landing, essentially, and we can avoid a recession in 2024.

Dave:
All right, Chen, can I get a number out of you?

Chen:
I understand the hesitation to give a number, right? It’s hard. There’s so much uncertainty these days. I would guess that the number starts with a six in December of 2024. In our Redfin predictions, we guessed, I think something like six and a half by the end of 2024. We published that before the December Fed meeting where Powell really started to show a pivot. So maybe it will be a little bit lower than that. Maybe it’ll be in the lower sixes. But I think Orphe gave you a really good framework for thinking about what will happen with rates. It depends on what the Fed funds rate does, and then there’s a lot of uncertainty around all of that. But on top of that, you had mortgage rate spreads, obviously, and that might collapse a little bit.
But critically, there’s what happens with the Fed funds rate, what the Fed is going to do. But then there’s what happens with long-term rates, what the 10-year treasury is going to do, and the Fed just has very little control over that. So that could stay the same, go up or go down as the Fed is cutting. It’s a little bit uncertain, depending on what else the Fed is saying and what other economic circumstances there are and what else investors are worried about. So in this past summer, investors became very worried about government debt levels, like tax revenues, the long-term sustainability of our spending and how much treasury supply there was. And so yields really shot up and rates really shot up, and that really had nothing to do, a very little to do with inflation. So that’s what makes it really hard to guess. But I think if I were someone who was looking to buy a home in the near future, I would guess that in 2024, you’re going to round out the year with numbers that around a number that starts with a six, maybe in the low sixes.

Orphe:
And then also, Chen, you alluded to all these factors. And then there’s also the global economy from abroad. Investors abroad are looking to US assets. When you have conflict abroad, you have geopolitical tensions, that could mean more investors come in to absorb all of that treasury supply. And so those are all factors to keep track of, which is why the job of forecasting yields is very, very difficult.

Dave:
Yeah, that’s a great point. I want to just sort of reiterate and make sure everyone listening understands this. The Fed does not control mortgage rates. They control the federal funds rate, which of course has an impact on bond yields and on businesses and all these other different complicated things that impact mortgage rates. But just because the Fed says that they might cut rates three times next year, I don’t think we should all be taking a victory lap. I think it’s encouraging, but there’s still likely to be some volatility in rates, at least in the short term, while we see where bond yields start to head. And again, we’ve seen the Fed indicate things that they wound up not doing. So also, there’s just no guarantee that they’re going to stick to the plan or the indication that they’ve given us as of December of 2024. But that said, I think things are looking encouraging.
I want to turn to risk because most of the people who listen to this podcast are investing. They’re not buying a home to live in for 5 to 10 years. And so I’m curious, although you’ve shared some of your feelings about the housing market and where it might be going, I’m curious, Chen, do you have any thoughts on what risks might exist for real estate investors heading into the next year?

Chen:
I think the risks are going to be regional. So I think that overall, as we have been discussing, if you are a real estate investor, I really don’t see prices coming down a ton. However, I do think there could be certain markets where you do see some significant price declines. We’re already seeing some pretty significant price declines in places in Texas, for example. So I think Austin in our data is down close to double digits year over year on median sale price. So a lot of these places that actually where it was a lot easier to build additional supply, which was great. In the pandemic, when people were really trying to move there, it was easier to build that supply to meet the demand, and prices were going up a lot. We’re now probably seeing the opposite, where there’s less demand, so there’s more risk for prices coming down in some of those markets.
So a lot of these might be Sun Belt areas like Austin, for example. So that’s where I would probably be a little bit more cautious, but I would feel a little bit safer in the more affordable places, places where prices are lower. So we see that in Upstate New York or in the Midwest where prices are below the national median, those places are some of the tightest markets that we’re seeing, where homes are going the fastest. I think in Rochester, we were seeing the homes were going off the market in eight days on average, and that’s because these places are just very affordable and in a tie where affordability is really strained, they’re very attractive.

Dave:
Makes sense. I love the Rochester shout out. I went to college there. Orphe, what about you? Do you see any other risks in the market?

Orphe:
If you look at the latest American community survey data for 2022, Austin, Texas was the fastest metro out of the top 50 metros at least, fastest growing by population. And in the housing stock, they are just exploded at the same time. And the housing stock grew faster than even the fastest population growth. And so now, you end up in a situation where you have all these homes, and so of course, prices, it’s end prices falling. And so I think Chen alluded to this, we’re seeing the same thing in our data. Whether or not that’s going to continue is another story because I think that if people are going to places… And Austin may not be affordable for locals, but if people are going to Austin from California, by the way, we know 30% of Californians are moving to basically Texas, Arizona, and Florida. So if people are moving from the more expensive California metros to Texas and then they’re seeing that prices are falling so much, well, that decline in prices might actually be a good thing going forward.
And then I also like some of these markets, Charlotte, Raleigh, North Carolina, you got that research triangle there, you still got a lot of people moving to that area. You got the Nashville, Tennessee market, which is one of my favorites, also with still a lot of population growth. And so those are markets where I expect to see the continued population growth. But you also have to be careful in the sense that if you have a lot of renters that can’t necessarily go out and buy a home, or you have a lot of people or builders expect population growth to remain robust in some of these markets, well, you’re probably going to see a lot of supply. If I anticipate all these renters coming, well, you’re going to see a lot of people wanting to become landlords and builders building a ton of supply.
And so maybe you’re not going to get the types of returns on your investment that you thought because everybody’s doing the same thing. So that’s why I talk to agents a lot. I love agents, work together a lot. And so I talk to agents and agents and tell me, “Yeah, it’s booming here. Yeah, but builders are also coming in big time.” And so now you might have to compete with… So I was looking at single family town homes and homes in the Nashville area, and then next door, you have a multifamily unit and they have a swimming pool, pickleball court, they’re offering rent concessions. So now, if you’re a landlord in a town home next to a place like that, you have to compete with the concessions that the other guys are offering right next door. And so you have that supply common. If the demand was anticipated, you have a ton of supply. And so now, you’re also having to compete with the other new landlords in town.

Dave:
That’s a great point, Orphe. I really resonate with that because I still own a couple properties in Denver, which is definitely one of those more overbuilt areas in terms of multifamily supply. And I wound up selling a property because you just look around you and it’s one of these old Victorians that are cut up into four different units. It was a nice place, but then you see these brand new things with a gym coming on and it’s offering similar rent. And I was like, “I can’t compete with that.” And even if I could keep vacancies pretty minimal, rent growth is going to be stunted in that area just because you’re facing a lot of competition. And so that’s something… It’s a really important risk for people to think about in their market. But that one, again, is super regional, where multifamily supply is coming online, tend to be in these hotter markets. It’s really less significant I think in some of these tertiary or smaller cities. You just don’t see it as much.

Orphe:
That’s right.

Dave:
Chen, are there any markets that you think are particularly interesting, either in a positive or negative way next year?

Chen:
Yeah, I think that in addition to the Sun Belt and these really affordable places, I think watching the West Coast markets are going to be really interesting because those are the ones that had the big price correction that we saw late in 2022, early in 2023. And those were the kinds of places where I think people were kind of going back in and saying, maybe there’s a deal to be had now. And they’re also the places where we’re seeing some of these trends around return to office that are changing now. So I think companies are becoming a little bit more strict with return to office.
You’re hearing stories about boomerang migration. We hear those from our agents where they’re saying, “Yeah, this person, they moved to Boise, but then they discovered that either they wanted to move to a place that had a lot more jobs than Boise, or they just discovered that the Boise lifestyle really wasn’t for them it turns out.” That maybe they actually want to be closer to a San Francisco or Seattle or something like that. And maybe similarly you see something like that with a Miami to New York kind of thing. So I think keeping an eye on those places like the San Franciscos, the Seattles, the New Yorks, and the DCs where people were leaving those places and seeing what’s going to happen in 2024 would be really interesting.

Dave:
Great. Well, thank you both so much. This has been a fascinating conversation. I got to tell you guys, I thought having someone from Redfin, Zillow, two heavyweights in the industry, we’re going to have this big clash, but you guys agreed on a lot of stuff. So hopefully that helps our audience and feel confident about what’s going on next year, that we have a couple of economists agreeing with each other, which is not always the case when you bring two different economists together. But thank you both so much. It’s really appreciated. Orphe, if people want to learn more about your research and the work that your team does, where should they do that?

Orphe:
Yeah, zillow.com/research. And if you want to look me up on social media, I’m on LinkedIn, you can just type in my name and it’ll be very easy to find me.

Dave:
All right, thank you. What about you, Chen?

Chen:
Yeah. We’re similarly at redfin.com/news. You could also follow Redfin on social media, on Instagram or Twitter, or formerly known as Twitter, I guess, these days, or other social media platforms.

Dave:
Well, thanks again to both of you. We hope to have you back on the show again soon.

Chen:
All right. Thanks so much for having us.

Orphe:
Thanks for having us.