The optimism that pervaded the U.S. housing market as mortgage rates declined in December has recently dwindled, but there are lessons sellers can learn from the fleeting burst of activity at the end of last year.
Some U.S. housing markets saw a meaningful upswing in activity toward the end of 2023, as mortgage rates slid from their peak of 7.79% in October to 6.6%. As mortgage rates fell, pending sales rose in some of the more affordable markets around the Midwest and South, according to data from Redfin.
“So far we’re seeing a modest improvement in demand,” said Redfin chief economist Daryl Fairweather.
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For instance, Dallas and Milwaulkee saw pending sales jump more than 8% year over year as rates dipped. They were followed by significant increases in Austin, Texas, and Orlando, Florida.
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These metro areas, despite registering increases in prices during the pandemic era, have still remained comparatively affordable for many buyers, Fairweather said.
“Those places are growing right now because they’re still the more affordable option,” she added. That’s especially true for the droves of deep-pocketed newcomers moving from pricey coastal metros, including New York and Los Angeles.
The December bump in pending sales didn’t last into January, as rates rose again and were hovering above 7% this week. Meanwhile, Fed Chairman Jerome Powell said in a recent interview on “60 Minutes” that it would likely be a couple more months before interest rates were cut.
Still, when mortgage rates do decline this year, as they’re expected to, trends seen in December offer prospective home sellers clues into where exactly buyers are ready to pounce. We took a look at three hot spots:
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Dallas
It’s common knowledge among agents that sales tend to slow down around the end of the year, as buyers turn their attention to the holidays. But 2023 was a strange exception to the rule, said Brandon Bennett, a real estate agent with eXp Realty based in Dallas.
Chalk it up to the interest rate drops, he figured.
“People just came out of nowhere just before Christmas,” he said. “It’s gotten kind of crazy since interest rates dropped at the end of 2023. Around the end of the year, showings and transactions started to increase.”
New inventory coming back onto the market has helped to fuel sales. As of the fourth quarter of 2023, new listings for luxury properties in Dallas—those with values in the top 5% of homes in the area—were up 15% from last year, according to Redfin data.
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And there’s also increased demand.
“We’re seeing multiple offers again, which drives prices back up,” Bennett said.
The median sale price for luxury properties ended the year at $1.4 million, up 6.5% from last year. Bennett said he expected that in the overall market, prices will increase moderately throughout the year as more people gain the confidence to re-enter the housing market, fueling further competition.
The luxury market, with fewer buyers, could see prices hold more steady. Bennett recently worked with the seller of a 5-acre horse ranch that had sat on the market. Bennett counseled the sellers to bring down the price, and finally after months of sitting on the market, the property sold this fall for $2 million, just below the asking price.
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Milwaukee
Milwaukee buyers appeared ready to strike at the end of the year, with pending sales up 8.4%. But those aiming for the luxury market will have to contend with a continued dearth of available homes on the market, and ever-increasing prices—conditions ripe for home sellers.
As of the fourth quarter of 2023, new listings of luxury homes in Milwaukee were down 16.7% year over year, according to Redfin data. Meanwhile, the median sales price for the top 5% of homes hit $910,000, up 7.1% from the same time last year.
Wendy Murphy, an agent with Sotheby’s International Realty in Lake Geneva, said that the current interest rate environment doesn’t impact her sales in the upper end of the market as much. About 83% of the transactions she completed in 2023 were done in cash.
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But, she said, many times her luxury buyers are selling off a different property before they purchase their second home—and it’s those buyers who are counting on financing. Thus, the higher interest rates can filter up to the luxury market, even if her buyers aren’t reliant on mortgages themselves.
As a result, the market has cooled down somewhat over 2023.
“Sellers were still under the impression that whatever price they listed was going to sell, and buyers wanted to pay what they felt to be fair,” she said. “It was a standoff.”
She expects to see prices in the luxury market continue to hold steady in 2024.
“We’re back to that new normal,” she said.
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Austin
Austin’s pending sales increased moderately in December as well, in a sign that the Texas Capital’s market may be heating up again for 2024.
One of the fastest-growing metro areas during the pandemic era, Austin saw its median prices hit a peak of $670,000 in April 2022. Since then, prices have come back down to earth, now at a median of $523,250.
Prices for luxury homes are deflating, too. Between the fourth quarter of 2022 and 2023, prices decreased 8.6% to $1.69 million, the largest drop in the luxury segment for any metro area in the country.
But in good news for buyers, luxury inventory does appear to be on its way up. The total number of luxury homes for sale in Austin increased 44.5% from last year, offering more choice to buyers looking to move up.
