2023 was a difficult year for the housing market. It started with a continuation of negative trends from the end of 2022 and turned into the least affordable year for home buying on record. So what happened? In short: Record mortgage rates, high inflation, and persistently high housing and rental prices. But there was a lot more to it as well. Rising prices and steep borrowing costs in the US housing market kept homebuyers in a year-long limbo, with a national property shortage adding to headwinds in the sector. The pandemic-era sub-5% mortgage interest rates that 85% of mortgage holders are locked into kept homeowners from selling their homes and buying another at elevated interest rates, which peaked at 7.79%, according to Freddie Mac.

Key market factors/takeaways:

• First-time homebuyers made up 26% of the market.

• Homeownership rate in the US was at 65.9% mid-2023.

• By September 2023, there were 4% fewer homes for sale than the previous year.

• Rent prices remained high but stopped short of a record. The median U.S. rent price hit $2,050 in August 2023, matching the record price of $2,050 set in August 2022. Year-over-year price changes were flat until November when they dropped significantly, as an increase in inventory and vacancies forced landlords to hold rents steady or drop them. The U.S. currently has a shortage of 7.3 million affordable housing units for those who need them, and no state has an adequate supply.

Inflation remained high throughout 2023, and although there was a steady decline towards the end of 2023, it remained above healthy levels.

Mortgage rates ballooned over 8% for the first time in 20 years.

But will things change this year?

There are signs that market conditions will be improving.

Mortgage rates dropped steadily over the past seven weeks, averaging 6.61% for a 30-year fixed mortgage, the week ending Dec. 28. Most experts predict the average 30-year mortgage rate to linger anywhere between 6.1% to 7% range in the first quarter, then decline throughout the year. As of Wednesday, Dec. 27, the national average 30-year fixed APR was 7.02%; and the average 15-year fixed refinance APR is 6.44%, according to Bankrate. A 30-year refinance rate came in at 7.16%.

Sales of existing homes are projected to rise by 2.2%, according to the Realtor.com® forecast. The median sale price is projected to increase by 5%. But what about the rental market?

RentCafé.com has released its 2023 Year-End Report that shows that the Lehigh Valley has the sixth most competitive rental market in the U.S., sandwiched between Knoxville, Tennessee, and Madison, Wisconsin.

According to the company, the fierce competition among renters, fueled by the sky-high renewal rates, pushed this Pennsylvania market high on its ranking. Compared to the national averages, newly constructed apartments increased by 2.8% in Lehigh Valley this year versus the national benchmark of 1.8%. The occupancy rate in Lehigh Valley was 96.4% versus the national average of 94%.

The survey showed that 79.8% of renters chose to renew their leases in 2023 versus the national benchmark of 60.2%.

So what does all this mean? Well, if you are an investor, it means that 2024, although not as competitive from the perspective of multiple bids and prices far above asking, will still require diligence to secure financing that makes sense in the current environment. Should you wait? The answer to that question is always no, assuming you can find a deal that cash flows and meets the financial objectives you have for investing. Let’s face it; there is never a perfect moment to invest. Just like the stock market, the real estate market has ups and downs. Timing is important but it is not the end-all-be-all for success. A bad deal is a bad deal in any market. My advice is to set goals, stay true to those goals, and buy because the deal makes sense and not just because you want to buy.

Prices will start to decline in 2024. Interest rates will follow. Although I think the days of 3% are long gone, the reality is, there are plenty of great funding options available to investors. Then there is the old motto: cash is king. If you have the cash available, perhaps you use it now, wait for the interest environment to change and pull out the equity down the road. Whatever your choice, be educated, surround yourself with a great team, and let 2024 be your best investing year yet!