Declining rates give homeowners the upper hand
Like plotting resolutions, it’s that time of year when people in business venture out on outlooks for the coming year. So, without hesitation, let’s hear what some folks are predicting after a tumultuous 2023.
“I’m feeling fairly optimistic about 2024,” Kenon Chen (pictured left), EVP of strategy and growth at Clear Capital, told Mortgage Professional America during a telephone interview last week. One caveat he offered: His optimism hinges on whether people in the industry have learned lessons from 2023 and are smart about their resources and focus on the right use of technology to further their businesses.
“We have seen volume in 2024, and there are early indications we’ll see rate cuts,” Chen said. “We’ve already seen mortgage rates decline into this week. It gives some early indication we might see something of a normal market, which is great. That means that some of the things we’ve been talking a lot about like valuation modernization – bringing things like inspection-based waivers into your options as a lender – becomes really important as it returns to a normal market because it won’t take too much volume to test our capacity as an industry.”
The lack of appraisers is worrisome
Chen said he worries about the dearth of appraisers in the current landscape: “We had about 25% fewer active appraisers in 2023 than we did in 2024. So the question is, are they going to return to that work or are we going to return to some of those things we saw during COVID which is when people are out of the labor force they don’t tend to come back in very quicky even if volume returns. So it’s important, as a lender, to have these options as part of what you can offer in order to be as scalable as possible to capture volume.”
Declining rates play key role in commercial too
It’s much the same story in the commercial sector. But like Chen noted, it’s important to focus on fundamental matters.
“Expect the market to show some sort of decline in rates, but you’re still going to focus on the fundamentals,” Jim Costello of CBRE said. “You’re still going to have to focus on a property’s operating income moving forward to a greater degree than you did in the past. So you really need to focus on the leasing game. You really need to focus on asset management and your CapEx spend.”
On the commercial side, Richard Barkham (pictured right), global chief economist at CBRE, is keeping his focus on the macroeconomics: “I think it’s going to be a slower year in terms of economics, economic growth,” he said. “We’ve got a slowdown in Europe taking place. We’ve got a slowdown in China taking place, and possibly a kind of longer-term crisis in China brewing. And I think some of the lagged impacts of interest rates will finally feed through into the very exuberant US economy.”
Despite those factors, there is good news on the US side, he added: “But I do see resilience in the US economy,” the economist said. “We don’t see, necessarily, a recession, but at least a slower year.”
For Barkham, 2023 was a tough nut to crack, he suggested: “I think it was the worst forecast year, in at least the last 20 years, possibly my career,” he said. “So we expected a recession and we got a not exactly booming economy, but a pretty robust economy. So a tricky year. It was, I would say, even more easy to forecast during the pandemic than it was over the course of 2023; a very complex economic environment. Hopefully things become a bit clearer in 2024. I think they will.”
With inflation down, he suggested, things have gotten clearer in the prognostication game. “Thankfully, around the world, inflation is finally trending down,” Barkham said. “The last mile might be a little bit more difficult, but it does mean that we are at the peak of the rate cycle and rates may not come down quite as quickly as the market is expecting, but they will be trending down over the course of the year and that should feed into capital markets activity and probably improved occupier sentiment as well.”
Back on the residential side, Chen noted the last few years have been defined by the pressure on the industry to make alternative business models profitable quicky and adapt to the rapidly changing market. Yet some homeowners are in a position to combat the mercurial market given the massive level of untapped equity in homes – a collective $28 trillion according to the Wall Street Journal. Ever-increasing home valuations only add to homeowners’ position.
“If you look at our latest market report, we were still seeing a 6.6% appreciation year-over-year as of our December report,” Chen said. “So the strength of the current equity position of homeowners is pretty amazing.”
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