2024 real estate predictions.
I'm going to predict home prices, rent prices,
interest rates and the CPI one year from now.
So I'm asking you all to challenge me.
I'm asking you all to poll what you think's going to happen in
12 months from now.
And for some of you, I may even reach out to you personally.
So where are we today?
Right now, in December of 2023, the Fed inflation target is 2%.
It's been this way from the beginning.
As you know, we peaked of 9.1% back in June of 2022.
Currently, the CPI is somewhere just over 3%.
So the Fed's getting close.
Interest rates are about 7.24%.
They were as high as 8% recently, so they're down a bit.
The cost to buy a single family home all in on the average is about 30 $200
a month.
And read as of December of 2023 was sitting at about 1840 $7.
That's where we are today.
The real question is where are we going to be in one year from now?
So now let's take a look at the chart.
The red line indicates the cost each month to rent.
The blue line, of course, represents the cost to buy.
As you can see, this chart starts in 1970 and ends current day.
Red has steadily climbed, but as you can see from 2022,
it actually spiked a little higher than the normal average.
The cost to buy, of course, has been all over the map
because there's many factors included, one, of course,
being the price of a home and two, of course being the interest rate.
So pay attention to the blue shades.
As you can see, these are the boom and bust of the housing markets
over the years.
What I really want you to look at is the disparity
between what it costs to buy versus what it cost to rent.
That's the most important thing in 2021.
Home prices spike as millennials entered their prime
homebuying age during a period of ultra low mortgage rates.
This sent home prices skyrocketing.
Then, of course, the Fed increased the federal funds rate 11 times.
So what does this all mean?
What this means is that currently today there's a 52% difference
between the cost of buy versus a cost to rent.
It's never been this high before.
What this chart does not represent are the costs for property tax,
for insurance, for utilities, for maintenance and those kinds of things.
So the monthly cost to own a home is actually significantly higher.
Of course, you don't have those costs when you're renting,
but those are serious costs.
So my first prediction, which is contrary to what most people are saying,
I believe that home prices are going to go up slightly in 2020
for the reason I believe that is because of the chart.
If you follow the monthly supply of homes in the US, you will see that
it's dwindled significantly as compared to the historical averages.
So what we have here is a supply problem.
So the real question that you need to ask yourself
is what drives prices up, not what drives prices down.
Cost of construction drives prices up, interest rates drive prices up.
Low supply, as I'm showing you here, drives
prices up and high demand drives prices up.
And the reason you have high demand is because there's low supply.
So my prediction for 2024 is that housing prices will not drop.
They'll actually maintain or slightly increase as a result of all those things.
Currently, the median price of a home is about 420,000.
But as many of you know, we're anywhere between four and 5 million housing
units short just to meet demand, high demand, low supply, increase in price.
So what factors make prices go down?
Not lower interest rates, lower interest rates actually create asset bubbles.
So what is the Fed supposed to do when housing prices are going up
and interest rates are going up?
This is the quandary that they're in.
So what makes prices go down? Supply.
But there's a lag with supply.
Even if people start to build, which they're not, we're going to have a lag.
2024 and 2025 are actually going to be even worse.
So now let's talk about interest rates for all of you
who think interest rates are going down.
What are they, eight, seven, six, five?
It might be interesting to know that over 82% of all people
have mortgage rates right now under 5%.
So what's the motivation for them to move unless rates
come down three, 4% and that's not happening in 2024.
So now let's look at rents currently, rents are about $847 on the app.
Rents in my prediction are also going to go up.
Keep in mind the cost to buy is 52% higher than it is
right now for the cost to rent.
That's a historical all time high.
This is going to push more and more people into the renter category
and people are going to have to read by choice.
The combination of high building costs
and high interest rates make building unaffordable.
What we need right now is affordable housing
and what we have is an affordable housing crisis.
All let's don't forget, if somebody was to jump from renter
to homeowner, they're also going to have property
taxes, insurance and utilities and all of those things.
So the gap between renting and owning has never been wider
and it's only going to get worse.
So now let's talk about interest rates, everybody wants interest rates go down.
We've already discussed that it's now more economical
to rent than to buy and nearly all of the major U.S.
markets.
My prediction is that interest rates are going to go up slightly,
stay neutral and then go down right around election time
because pathetically high interest rates is not good.
And my interest to you, the shelter drives over half of the headline
CPI or consumer price index increases.
That shows you where shelter sits as it relates to the CPI,
what I just showed you is that I predict that home prices are skyrocketing
and rent is also going to skyrocket for all the reasons already mentioned.
That's going to be a problem for the Fed.
And the Fed's ability to address rising housing costs is limited
as shelter cost increases are driven by a lack of affordable supply
and increase in development costs, which the Fed is not in control of.
So inflation is going to continue to push higher and the Fed is going
to have to use interest rates to tamper it down.
So my predictions for December of 2024 and I challenge
you all the Fed's inflation target of 2% is not going to change.
The CPI is going to be reported still somewhere between three and 4%,
but it's going to stay high because food costs
and shelter is going to be the Fed's biggest problem.
And because the CPI costs are going to be a problem through all of 2024,
the Fed is not going to be able to lower interest rates like everybody wants.
I believe they're going to lower a little bit as we lead into the election year.
However, it's not going to be meaningful
because the home prices are not going to go down.
Therefore, the mortgage payment, which includes property tax, insurance,
utilities and all those other things, is going to stay, at least at 3200
plus and rents are going to climb continually because of lack of supply,
which we've already discussed.
And the gap between renting and buying is still going to be at our all time
high one year from today.