4th Quarter 2024 Housing Market Recap & Looking Ahead to 2025

Happy New Year from all of us at the Swanson Home Loans team here at Guild Mortgage. It's been an honor to serve you over the years and it'll be an honor for us to hopefully be able to assist you again in the future when the timing's right. As we wrap up 2024, I wanted to provide you with a quick year in review to show you where the housing and interest rate markets have been and a little bit of forecast on where we see things going as we head into a new year. So I'll get out of the way here and start sharing some slides. When we look at the volume of transactions, the volume of sales for residential property here in the Portland metro area, we're going to end up 2024 will show a similar number of transactions as we saw in 2023. Now that number of course was down from 2019, 20 and 21 because of course super low interest rates spurred a lot of housing activity during those years. And now what we're seeing is many homeowners have the proverbial lock-in effect because of their existing low rate. So there is a disincentive to make a housing transition and we're seeing that play out in the numbers. Now in time we will see housing transactions grow. Housing cycles tend to work in patterns and you can see when we have periods of slowdowns as we've had the last few years, similar to what we had in the last few years of 2005-6-7, that decline is sharp meaning that the fall off is very very quick to happen. The rebuild is very very slow and so I think what we're going to see here is that 2023 and 2024 will end up acting as the trough for this next cycle and starting in 2025 we'll begin to slowly rebuild the volume of transactions in our marketplace. Now when it comes to home price appreciation, home prices are up year over year but very very modestly. Right now you'll see home price appreciation up one or two percent for the Portland metro area and that honestly is somewhat welcome because you can see in the last 20 years we have seen very volatile ups and downs in terms of year over year appreciation or depreciation. When we have more modest gains it makes sellers and buyers more confident to make a decision and so modest house prices increases I think is a healthy thing for our marketplace. I think one of the biggest themes looking back on 2024 will be the Fed's change to their monetary policy. So starting this year the Fed began to cut short-term interest rates, the federal funds rate. This is not mortgage rates but basically the Fed had had interest rates in a restrictive mode in order to slow down economic growth and curb inflationary pressure. And towards the tail end of 2024 of course they cut short-term interest rates by an aggregate one point and they're now looking for what they call the neutral interest rate not to necessarily support the economy and not to necessarily restrict the economy. Now mortgage rates had a very up and down year as well. We started off 2024 with a lot of optimism because mortgage rates had come down from around eight percent into the mid six percent range and then from that point January 2024 up until May mortgage rates climbed back up over seven percent again. Now starting in May anticipation over Fed rate cuts began to build and we saw mortgage rates improve hitting the low points right before the Fed cut rates in the middle of September. So mortgage rates for 2024 hit a low point in the beginning of September and since then they've increased after the Fed began cutting interest rates. Now the good news in 2025 is most of the quote-unquote experts out there in this case Fannie Mae, the Mortgage Bankers Association and Wells Fargo are predicting lower rates next year than we currently have and frankly all we really need to happen is for history to repeat itself. If you go back and look at the 30 years and the relationship between mortgage rates and the federal funds rate you'll see that on average mortgage rates improved by about three percentage points peak to trough once the Fed has shifted monetary policy. Now that window of time definitely is different for each cycle. Back in the mid 90s it only took about a year for mortgage rates to peak to trough. Back in 2006 it took seven years for mortgage rates to go peak to trough. So bottom line right now mortgage rates are about one percent below the peaks of October of 2023. We think that in the next one, two, three, four, five years we will see mortgage rates one to two percent better than we have today. Now a few of the other things that we're watching or looking at economically is in the jobs or labor market here in Oregon there were some bad headlines this year. Of course Intel and Nike announcing major layoffs which impact a lot of our family, friends and neighbors and of course you know wish the best for them. I think the good news though is if you look at the number of jobs in Oregon there even despite those cuts there is more Oregonians working today than at any point in our history and state economists think that that number will continue to grow. There's over two million jobs in Oregon and that number is going to continue to grow into 2025. More good news is the population here in the Portland metro area is growing again. Like many urban settings during COVID we saw population declines which is not good for housing demand and that number has bounced back and you can see the population of our Portland metro area beginning to grow again. Furthermore if you look at the age demographics within our population they're very favorable for housing. We think demand is going to remain strong into the future that's because the largest age cohort within our population is between the age of 30 and 45 and according to the Census Bureau home ownership rates at the age of 30 are is 40 percent. Once our population reaches 40 then it's 60 percent so there should be a lot of growth in demand for housing in the next 10 years and the reality is is that unfortunately housing supply continues to remain constricted. Since 2000 we've seen our region's population grow by 30 percent meanwhile we're building 30 percent fewer homes today than we were at the beginning of the last decade. So long story short we've got plenty of demand unfortunately we're still behind in supply and that should help housing prices remain firm. A few other themes that we're following this year there was a survey done in 2024 of CEOs of major corporations. 83 percent said that they are considering a full return to office mandate at some point in the next three years. Oregon ranks second in the entire country in terms of our share of employees that work remotely. Many of those employees will get returned mandated return to the office and we could see some housing transitions that are signaled because of that. So here are some of my predictions for 2025. Keep in mind I don't have a crystal ball but we try to follow this pretty closely. We think the number of transactions in our marketplace will grow by about seven percent in 2025 compared to 2024. I see modest home price appreciation. I think home prices will increase by about three to five percent year over year and I think mortgage rates will improve by about a half percent compared to where they were in 2024. Most of 2024 we spent between six and a half and seven and a half percent. For 2025 I'm predicting mortgage rates will move lower from about five to seven percent. So bottom line you know the housing market housing prices will remain somewhat firm. I think there'll be modest improvement to interest rates and modest improvement to home price appreciation rates. If there's any help that you need with your housing needs in 2025 or any point in time please don't hesitate to reach out and more importantly have a happy and healthy new year.