Bank of America economists issued a report Thursday cautioning against “potential turbulence ahead” for the 2024 national housing market, dismissing theories of another crash.
“We think the (housing recessions of the) 1980s are a better analogy for today's market than the 2008 housing crash,” wrote Jeseo Park and Michael Gapen, U.S. economists with Bank of America Securities.
In the 1980s, soaring inflation drove the U.S. Federal Reserve to double mortgage interest rates, peaking at 18.6% in 1981 as the country’s all-time high. While this increase helped cool inflation, it caused a steep fall in economic activity.
Local real estate experts shared similar predictions for the future of the Central Florida market. The Orlando Regional Realtor Association, one of the largest local trade associations in Florida, published the data in its two most recent State of the Market Reports.
In August, the monthly document reported a slight cool down in the market, with a small decrease in sales. This followed a July report, showing that the median house price had ticked down slightly and for the first time since the start of the year.
That same report also showed mortgage interest rates finally came down. However, they still stand as Central Florida’s second-highest rates in 20 years, clocking in at 6.7% — the highest in 20 years remains 7% in October of 2022.
ORRA President-elect Rose Kemp, a realtor for 23 years, said that, while the changes are “minute” she believes they point to a possible stabilization in the market, following a period of the highest housing costs in Florida's history.
Kemp said this slight cool down, however, is not to be confused with a housing crash. The conditions for a drop like that, she said, do not exist anymore.
“We’re seeing stabilization in our market. We’re not seeing, ‘Oh, my gosh. Prices are going to come down 20-30%.’ We’re not in that market. It’s not 2007, 2008. We don’t have those kinds of factors,” Kemp said.
ORRA’s State of the Market Report showed a $5,000 decrease in median home price for August, which came after another $5,000 decrease in median home price in July. Kemp said these changes are expected, as spring and summer are the most active months in the market, normally followed by a lull in the fall and winter months.
Kemp said this slowdown in real estate transactions, including the drop in prices, do give buyers more purchasing power, but people holding out for a crash before they buy are in for a big disappointment.
She said people interested in buying should consider doing so now before housing prices become even less affordable — or risk renting for another 10 years.
“I’ve seen buyers earlier this year that decided to just wait because they thought, ‘Oh, there’s going to be foreclosures’ and all this stuff. There wasn’t. There isn’t. What did happen was interest rates went up,” Kemp said.
Her observations of the market mirrored the BofA Securities report, which forecasts that the near-record low in housing inventory, combined with the highest mortgage interest rates in decades, will likely result in a housing market recession — not another crash.
Current ORRA President Lisa Hill, a real estate consultant in Central Florida, said that, even though high interest rates usually mean lower prices, that has not been the case this time. The average home median price for the region ticked up every month this year, until its most recent decline in July, while rates either held steady or also increased each month.
This is unusual, she said, but the market was recovering from the pandemic — it still is. In 2020 and 2021, buyers saw interest rates as low as 2.65%. Hill said those rates are likely not coming back, and she doesn’t see them dropping any time soon.
She said this leads to a lack of supply, as owners become reluctant to sell their homes.
“What we’re seeing, too, is you have the people who bought back when the interest rates were at 2.5 to 3%. They’re going to sit on those homes now because, why would they sell a house they got for 2.5 or 3% and go to nearly 7%?” Hill said.
A lack of inventory in the market, Hill said, is the main factor driving Central Florida’s high housing prices, especially when so many people continue pouring in as new residents.
In September, Zillow reported that Florida is now the second hottest housing market in the U.S., knocking the state of New York from its former position. Adding the current housing shortage and high interest rates, the combination perpetuates the “lock in” effect on real estate trade that can cause a national recession, as Park and Gapen referenced in their BofA Securities report.
However, the economists pointed out something that could keep the market afloat next year.
“On the bright side, some sales activity should be supported by millennials reaching the prime home-buying age, and single-family building permits have steadily held up,” the report said. “This can help the housing market retain some of its momentum without falling apart.”
Lillian Hernández Caraballo is a Report for America corps member.
