The Numbers that drive US Real Estate

Welcome back to our six-part series on how to win as a buyer in today’s fast-paced market. Recently, I had the pleasure of attending the Keller Williams Family Reunion in Las Vegas, where I had an in-depth discussion with Gary Keller about the numbers driving the U.S. real estate economy. We focused on eight key factors: home sales, home prices, total market volume, inventory, mortgage rates, the treasury spread, affordability, and unemployment. Today, I want to take a deeper dive into four of these factors: home sales, home prices, mortgage rates, and unemployment, examining their impact on real estate both nationally and locally.

Home Sales and Home Prices: A Look Back at 2023

In 2023, the U.S. saw 4.1 million home sales, the lowest number since 2008. This is significant because it indicates that real estate is currently experiencing a recession, not based on home values but on the number of transactions. Despite high demand, the reduced number of transactions has caused home prices to continue rising. The national average home sale price in 2023 was $390,000.

In our area of mid-Michigan, the average sales price is about $220,000, which is $170,000 below the national average. This disparity suggests that our local market is unlikely to see a reduction in home values anytime soon. In contrast, states like California, Colorado, and Florida have seen such wild price growth that living there has become unaffordable for many. Michigan might become a future destination for those looking for more affordable housing options.

Mortgage Rates: Current Trends and Historical Context

Mortgage rates have recently decreased slightly, with local rates around 6.81%, mirroring the average rate from last year. Historically, the average mortgage rate from 1972 to 2023 was 7.74%, and from 1990 to 2023, it was just under 6%. We are currently between 6% and 7%, and I expect rates to potentially drop below 5.5% this year. However, waiting for rates to drop further before buying might not be the best strategy. It’s better to secure your home now and refinance later if rates decrease. As the saying goes, “Marry your home, but date the interest rate.”

Unemployment: A Key Indicator for Real Estate Values

The current U.S. unemployment rate is 3.6%. According to the government, an unemployment rate below 4% is effectively zero, meaning those not working are choosing not to. For real estate values to decrease significantly, unemployment would need to rise above 8%, causing potential missed mortgage payments. As long as unemployment remains below 4%, home values are unlikely to drop.

These overarching factors provide a high-level view of the real estate market, but everyone’s situation is unique. If you have specific questions about your circumstances, please reach out to me directly. The easiest way to contact me is on my cell at 517-303-3262. I’m here to provide you with the best advice possible.