The 2023 market was characterized by high interest rates, financial market uncertainty, surprisingly strong demand (considering the first two issues) and an extremely low supply of new properties, which continued to put upward pressure on prices despite reduced housing affordability. Sales numbers plummeted due to mortgage rates and a shortage of homes for sale, while for prospective sellers the lock-in effect of mortgages reduced their willingness to relocate. With interest rates falling and economic conditions and consumer confidence improving, the big question is how far interest rates need to fall before buyers and sellers start to enter the market in normal numbers again. At the moment, the direction is positive.
In the last two months of 2023, the average weekly interest rate on a 30-year mortgage fell from 7.79% to 6.61%. With inflation falling over the past year, the Fed is widely expected to begin lowering its benchmark interest rate in 2024, possibly in multiple stages. There is a consensus among analysts that mortgage rates will fall further. After year-end gains, the S&P index rose 25% in 2023 and the Nasdaq rose 45% (though it is back down in early 2024). This plays a major role in Bay Area household wealth.
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