Get ready, because the real estate market is gearing up for a significant shift. After years of the Federal Reserve hiking interest rates and creating a chill across the housing market, we saw mortgage rates soar and sales slow to a crawl. Homeowners, once beneficiaries of historically low mortgage rates, now find themselves “locked in,” hesitant to relinquish their favorable terms amidst a landscape of escalating borrowing costs. The resulting scarcity of available housing has, in turn, fueled a surge in prices, placing homeownership further out of reach for many aspiring buyers.
The market, it seems, has been holding its breath. But as we look toward the end of 2024 and into 2025, the Federal Reserve’s recent signaling of a potential interest rate cut is poised to trigger a seismic shift in the housing market, an event some are calling the “Great Unlocking.” This policy pivot could liberate countless homeowners from their golden handcuffs, empowering them to list their properties and capitalize on still-robust property values. Simultaneously, a wave of pent-up demand from first-time buyers, who have been patiently biding their time on the sidelines, could flood the market. The confluence of these forces could ignite a boom in housing sales volume, breathing new life into a market that has been teetering on the brink of stagnation.
Lay of the Land
The evidence for this impending shift is already emerging. Mortgage rates, which soared to a 20-year high of 7.08% in late 2022, have begun their descent. As of August 2024, the average 30-year fixed rate sits at 6.46%, the lowest in 15 months. While this is still high compared to the ultra-low sub-3% rates we saw in 2021, it’s a start. This decline, coupled with the Fed’s dovish stance, is incentivizing homeowners to consider selling. A recent study by Redfin revealed that a staggering six out of seven homeowners with mortgages have an interest rate below 6%. The prospect of losing these ultra-low rates has been a major deterrent to selling, contributing to the current inventory crunch. And inventory? It’s tighter than a dad’s grip on his wallet during a holiday sale. Even with a slight increase—up 0.8% from June and nearly 20% over the past year—we’re still far from pre-pandemic norms.
But the winds are changing. As rates inch closer to the prevailing market average, the “golden handcuffs” are loosening. The National Association of Realtors reported a 1.3% increase in existing home sales in July 2024, the first uptick in five months. Houses sold at a seasonally adjusted annual rate of 3.95 million. While this may seem modest, it signals a potential reversal of the downward trend.
Meanwhile, inventory remains tight. Even with a slight bump—up 0.8% from June and nearly 20% year-over-year—the market is still far from balanced. There were 1.33 million homes available in July, significantly fewer than the 1.9 million homes on the market in July 2019. High prices and a limited selection continue to make things tough for buyers, particularly those looking to break into the market for the first time.
A Market Poised for Action
The Great Unlocking, however, will not be a uniform phenomenon. Its impact will vary significantly across different regions and demographics. Areas with robust job markets, thriving industries, and favorable population trends are likely to experience the most dramatic surge in activity. Tech hubs like Austin, burgeoning metropolises like Nashville, and sun-drenched retirement havens like Florida could witness a frenzy of buying and selling as homeowners and buyers alike seize the opportunities presented by a more accommodating interest rate environment.
Zooming in on the Denver and greater Colorado markets, we see a microcosm of these national trends, but with its own unique flavor. Denver has been a hotbed of real estate activity in recent years, fueled by a booming tech scene, an influx of young professionals, and a quality of life that’s hard to beat. However, the rising interest rates have cooled the market, leading to a slowdown in sales and a slight dip in prices. According to the S&P CoreLogic Case-Shiller Home Price Index, Denver’s home prices saw a 0.9% decrease in June 2024.
Mortgage rates potentially softening could reignite Denver’s real estate engine. Homeowners who have been hesitant to sell may finally list their properties, and the pent-up demand from first-time buyers could create a surge in activity. The Denver market, with its strong job market and favorable demographics, is particularly well-positioned to benefit from this trend. As younger buyers take advantage of lower borrowing costs to snag homes that were previously out of reach. The demand could be particularly strong for condos and townhomes, which have been less accessible during the height of the market frenzy.
Professionals
Every time the market heats up, there’s a flood of new agents thinking they’re going to ride the wave to easy money. But most of them are about as useful as a snowplow in the Sahara. Let’s be honest—many of them are not ready for what’s coming. The Great Unlocking will reveal who’s prepared to navigate these changes and who’s just along for the ride. As the saying goes, “We will find out who has been swimming naked, when the tide goes out.”
During the last boom, I knew an agent, let’s call him “Sam”. I’ve seen it firsthand. In every real estate boom, there’s always a “Sam”, an agent who got licensed because it seemed like easy money. But when the market turns, and it will, the Sams of the world won’t stand a chance. In this dynamic market, the role of real estate brokers will be more critical than ever. Those who can’t provide real value or adapt to rapidly changing conditions will find themselves struggling. Meanwhile, the agents who truly understand nuances of the market dynamics, know how to negotiate effectively, and can guide clients through complexities and provide exceptional customer service will be the ones who thrive. They will be the guides, helping buyers and sellers.
Major Player
The presence of institutional investors like Blackstone and Invitation Homes adds another layer of complexity to the Great Unlocking. These companies, flush with cash and driven by economies of scale, have been aggressively buying up single-family homes, converting them into rentals, and contributing to the inventory shortage. Data from the National Rental Home Council shows that institutional investors own approximately 2% of the single-family rental market, but their impact is disproportionate, particularly in markets like Atlanta and Phoenix where their market share is significantly higher.
These institutional investors may face a dilemma. On the one hand, the increased supply of homes could present opportunities to expand their portfolios. On the other hand, a potential dip in prices could erode the value of their existing holdings. Their decisions will undoubtedly impact the market, and it remains to be seen whether they will be net buyers or sellers in this new environment.
What Lies Ahead
Here’s what I expect to see as the market potentially shifts:
01— A Surge in Sales Activity As rates drop, we could see a wave of new listings from homeowners who’ve been waiting for a better market. This could create a flurry of activity, particularly in markets like Denver with solid
economic fundamentals.
02— Prices Will Pop. Followed by Stabilization As demand initially outstrips supply, Demand will likely push prices higher in the short term. We’ve already seen a 5.4% year-over-year increase in June, down slightly from May’s 5.9%. However, as more inventory comes online, we can expect price growth to slow, leading to a more balanced market later in the year.
03— A Culling of the Herd (Agents) The market will start weeding out less competent agents. Those who can’t deliver value or keep up with market changes will find it tough to survive. On the other hand, agents with strong skills, local knowledge, and adaptability will be in high demand.
04— Potential Regulatory Changes: We might see some pushback against institutional investors if they begin dominating the market. Higher taxes on multiple property holdings or stricter rules on converting homes into rentals could be considered. However, policy changes are unpredictable, so it’s best not to count on them. I expect institutions to continue to buy and hold real estate through this period.
Readying
The Great Unlocking could mark one of the most significant shifts in real estate in recent memory. For homeowners, it’s a chance to capitalize on equity and make long-delayed moves. For first-time buyers, it represents a narrow window of opportunity to break into the market. And for real estate professionals, it’s a moment to prove their worth—adapt, innovate, and guide clients through the complexities, or risk becoming irrelevant.
But like any shift, it will bring both opportunities and challenges. As we navigate this new landscape, it’s imperative to remain informed, adaptable, and, above all, optimistic. Denver and Colorado are poised to be at the center of this action, presenting unique opportunities for those ready to act.
Be Well,
Antwan
P.S. If you’re looking to navigate this complex market, whether buying, selling, investing or simply staying informed, don’t hesitate to reach out. We’re here to help.
