Denver Real Estate Market Update | December 2023

The Federal Reserve Will Cut Rates 6 Times in 2024 | December 2023 DMAR Market Trends

In a string of economic forecasts, ING is the latest bank to reveal its expectations for upcoming Fed Rate cuts. In response to the current economic slowdown, subdued inflation, a less dynamic job market, and a less optimistic consumer spending outlook, ING is betting on 6 rate cuts for a total drop of 1.5% in 2024 and another 4 rate cuts, equivalent to a 1% drop, in 2025. UBS came out swinging when it released its prediction of 2.75% in cuts in 2024 alone. Others, including JPMorgan and Goldman Sachs, laid their bets as well. While the market, as assessed by the CME FedWatch Tool, estimates 5 cuts for a total drop of 1.25% by the end of 2024. It’s all starting to feel a lot like Christmas.

The Federal Reserve, in its infinite bah-humbug persona, wants to squash any and all of this blissfulness. As recently as December 1^st, Fed Chair Powell talked of cutting rates being “premature” and said more hikes could happen. The most recent FOMC projections from September 20^th suggest a fed rate of 5.1% at the end of 2024 and 3.9% at the end of 2025. The current Fed rate is 5.25% to 5.5%. Everyone is eager to get more insight into how the Fed is thinking at the December 13^th FOMC meeting, where they will share their own projections. Interestingly, historically, the first-rate cut will come 10 months after the last rate hike on July 26th. That puts the bullseye on the May 2024 meeting for a bit of deja vu.

So, what does all of this mean?

It means we don’t know. We don’t know when the rate cuts will start or how deep they will go. However, the Fed runs the risk of waiting too long to move rates down toward the neutral rate of 2.5%, as waiting could lengthen the duration and deepen the depth of a possible recession. One that has so far eluded us in 2023. On the other hand, we run the risk of too much market exuberance, resulting in heightened market volatility and uncertainty.

Here’s what we do know: November turned out to be a banger month for the financial markets, with the S&P 500 closing up 8.9% month-over-month to mark the 18^th-best monthly gain in history. The Dow Jones Total Return (including dividends) hit a new all-time high, crude oil dropped 6.5%, aiding in lower inflation, the U.S. dollar slipped into its worst month for the year, and the 10-year treasury fell 0.76% off October’s high.

Higher equity prices boost the wealth effect, and a weaker U.S. dollar makes U.S.-produced goods and services more attractive on the global market. A lower Treasury yield helps ease the cost to businesses for managing their debt while making it more affordable to borrow, and falling crude oil prices reduce energy costs for both businesses and households.

On the consumer front, they are voting with their wallets. 2.9 million Americans traveled on November 26^th, the busiest day for air travel in history, like ever. A record high 200 million shoppers hit the malls and online stores during the 4 days between Thanksgiving Day and Cyber Monday. And when their money ran low by Monday, shoppers put $940 million on buy now, pay later plans during Cyber Monday alone, a jump of 43% year-over-year. Not surprisingly, consumer confidence broke a 3-month downward trend, surging 3 points in November.

Yet, the deep freeze in housing continues.

Nationally, Pending Home Sales fell to their lowest level in 20 years, and Existing Home Sales dropped to a 13-year low—both reports for October data. Locally, Pending Home Sales for DMAR’s 11 counties saw a small 4% gain over November 2022, which happens to be the only year lower than 2023 going back over 10 years. Pending home sales dropped a sizable 29% from last month. Existing Home Sales fell 14% from last year and 16% from last month. The lowest number of closed homes in November going back to 2010. And New Listings year-to-date is down by 18% year-over-year and 30% compared to 2019.

30% fewer homes listed means 30% fewer homes to buy.

This will be the opportunity and our struggle in 2024. Rates are already starting a downward trajectory from their 8% high in October to ending November at 7.15%, pulling 16% more buyers off the fence and back into the market this month. More buyers means more competition and higher home prices, further restricting affordability. 2023 saw supply and demand drop together, yielding a median closed price flat year-over-year. As rates drop, supply will have a hard time keeping up with demand.

…Even with Denver’s challenged affordability.

Colorado now ranks number one, boasting the highest share of millennials in the country per Scholaroo. Denverites have a median age of 35, with nearly 41% of Denver’s population between the ages of 25 and 44. And they are still moving here. In fact, per SmartAsset, Denver became home to the 5^th largest group of millennial movers in 2022. They continue to love it here because of the employment opportunities and quality of life despite a lack of affordability. And millennials are moving here with money. Colorado experienced a 1.9% growth rate in Millennials earning over $200k per year, aiding in Colorado’s increase in tax base by $836 million.

These Millennials will also start being the benefactors of the largest wealth transfer in history. Baby Boomers, those aged 59 to 77, are the wealthiest generation, having a cumulative net worth of nearly $75 trillion. As the average lifespan for Americans is 77, Denver’s 41% of the population is on the receiving end of this transfer, with 52% of millennials estimated to receive an average of $350,000 in inheritance.

2024’s economy is still up in the air, subject to the Fed’s control of inflation, a recession’s impact on employment, the culmination of a tumultuous political year, and the ease of ongoing geopolitical unrest. Yet, on the housing front, 2024’s lower mortgage rates will create opportunity and demand from newly transplanted millennials and those who have been unable to secure a home over the last three years. Competing over a continued tight supply of homes.

Until next time, this is Nicole Rueth with the Rueth Team. It’s my pleasure to keep you updated.

Nicole Rueth
Producing Branch Manager with The Rueth Team Powered by Movement Mortgage