Is 2024 the year to get back into a homebuying mood?
Or after a historically slow year for home sales, should house hunters wait for the real estate clouds to clear?
Well, everyone’s situation is different, from stages of life to family needs to personal finances and job security. Plus, the emotional weight of house hunting – from juggling various opinions to risk tolerance to a desire for a perceived bargain – also is part of the equation.
But amid various personal, real estate, and economic uncertainties, one might wonder if waiting until 2025 to buy is worthwhile. Could homebuying be any more unaffordable? Will prices swing up or down this year? Will mortgage rates soar – or tumble back to the 5% range?
Economic history serves as a useful tool to test if a wait-and-see approach might pay off for a California homeowner wannabe. Yes, it can diminish the value of current marketplace trends. But despite the all-too-frequently-claimed “it’s different this time” logic, history has a curious habit of repeating itself.
So as a public service, the trusty spreadsheet looked at a history of one-year moves in prices and rates to gauge how often waiting 12 months to buy paid off.
Will homes get cheaper?
Think about California home values swings through a combination of three Case-Shiller price indexes for Los Angeles-Orange County, San Francisco, and San Diego.
This history dates to 1987, including the housing booms of the late 1980s and the early 2000s, real estate’s ugliness of the early 1990s and the Great Recession, plus the pandemic economic madness.
- REAL ESTATE NEWSLETTER: Get our free ‘Home Stretch’ by email. SUBSCRIBE HERE!
And this yardstick tells us that California prices declined in 30% of the 12-month periods since 1987. So waiting can produce a bargain.
Please note that even with this noteworthy chance of a dip, California home prices have averaged 6.1% one-year gains over 36 years. So it could be expensive if you’re wrong about price declines.
Now, there’s discounting’s extreme – a 28% 12-month price dip when the bubble burst in October 2008. But don’t overlook the biggest upswing: the 28% price gain of July 2004 as the California bubble was getting frothy.
So waiting for a price drop, historically speaking, has modest value.
Wait for cheaper money?
Real estate gurus believe we’ll see falling mortgage rates this year. Caveat: these same smart people didn’t foresee last year’s 8% mortgages.
Freddie Mac’s average 30-year mortgage rate tells us that any falling-rate hunch is often correct. Looking back to 1987, that year began with 30-year rates at 9.2% and rates since then have averaged 6.3%. So there’s a certain bias toward the downward trend.
Remember, though, rates hit 11.3% in October 1987. And you wonder why Wall Street crashed that month? Rates also dipped to a historic low of 2.7% in mid-pandemic-panic December 2020.
It adds up to the 30-year rate falling 64% of the time in the past 36 years.
But there’s a “but” – and it’s a big one: The average one-year rate move is just a 0.1-percentage-point drop. That’s not much of a typical reward, even if you bet correctly.
Ponder the rate-swing extremes. The biggest one-year dip was a fall of 2.1 points through January 1996 that fueled the rebound out of the 1990s real estate funk. The biggest surge was 3.8 point surge ending in October 2022, a jump that squashed last year’s homebuying.
So, cheaper money should come, historically speaking. But is it worth the wait?
Will payments get better?
look, the typical buyer focuses on the size of the mortgage check they’ll have to write each month.
So, by combining mortgage rate gyrations with price swings, we create a benchmark for the typical California house payment. And this benchmark fell in 36% of the one-year periods since 1987.
That’s slightly improved odds that waiting to buy might pay off. Still, it’s an uphill battle since payments have grown, on average, 5.8% per year since 1987.
You could hope for history’s biggest payment drop. Think back to the 34% collapse in the 12 months that ended in December 2008 amid a global financial crisis.
But only short-term memory is required to recall the largest 12-month increase: The stunning 63% surge through October 2022.
Bottom line
Let’s be honest and talk about this on gambling terms.
To win big on this one-year waiting game, a California house hunter is essentially making a parlay bet that both loan rates and prices fall.
History says that such a bet hits 23% of the time – with an average winner getting a 14% discount on house payments. That’s not a bad payday.
However, if a house hunter is wrong, they don’t just tear up the losing betting slip. History also says when rates and prices don’t fall, there’s an average 12% hike in California house payments.
Postscript
Consider what it usually takes to push down interest rates and California home prices – a sour economy.
California’s unemployment averaged a 1 percentage-point increase to 9% since 1987 in 12-month periods when rates and prices were falling. Otherwise, joblessness fell 0.4 percentage points to 6.4%.
It’s a painful twist of affordability history: Your paycheck might be in danger when housing looks like a bargain.
Jonathan Lansner is the business columnist for the Southern California News Group. He can be reached at jlansner@scng.com