Our Bold Predictions for the
Maryland Real Estate Market
Every year, around New Year’s Day, we update our bold predictions for the real estate market in the coming year. We then update the information around the middle of the year. The Fourth of July holiday represents an informal high point for activities ranging from summer vacations, cookouts, sporting events, and more. July is also historically one of the busiest months of the year for home buyers and sellers who look to take advantage of summer vacation to move into better school zones for their children. This is the time when we publish our prediction about what we can expect in the next six months for the real estate market.
During the Covid-19 pandemic, 2021 and 2022 were anything but normal. Things changed quite a bit in 2023. We are now coming off of one of the most universally turbulent stretches experienced in modern history. Now we need to look toward the future at the repercussions of a potential sharp rise in the unemployment rate across the country.
It’s interesting to get some perspective on the current state of the market. In 2021, a $1,000,000 home purchased with 3% mortgage had a monthly payment of $3,374. In 2023, that same home could be worth $980,000 with a 7% mortgage rate and a monthly payment of $5,322.
Is a Real Estate Market Crash Coming?
Our prediction is that there will not be a real estate market crash. In the near-term, the world of real estate is experiencing a critical shortage of available homes. Because of rising interest rates and high inflation, homeowners are choosing to stay in their homes rather than make a move. Many of these people have very low interest rates from many years ago. In addition, many potential home buyers are waiting for the market to “crash” as it did in 2007 and 2008. This is based on a lot of information in the news media. Much of that information is wrong.
There are a few reasons why we believe another real estate market crash won’t happen:
- Home equity in the United States hit the highest level on record at $27.8 trillion.
- About 39% of homes are now owned free and clear (no mortgage).
- About 29% of homes with a mortgage have more than 50% equity.
- About 32% of homes with a mortgage have less than 50% equity.
Remember that the financial crisis caused a very high number of of short-sale and foreclosure properties because most homeowners had little or no equity. Many homes were purchased with 100% financing so there was no “skin in the game.” In today’s market, the number of foreclosures will likely be very small. Banks cannot foreclose on a home that has no mortgage. Also, a homeowner who has more than 50% equity can refinance if necessary to avoid problems.
What Will Happen with Mortgages?
Our prediction is that mortgage interest rates will begin to decline. This will certainly help the real estate market. Obviously, the interest rate increases by the Federal Reserve in 2022 and the first half of 2023 caused mortgage interest rates to rise. They are now double what they were in 2019 and earlier. Now that we have moved into 2024, we believe that the interest rate hikes are almost over. We expect 30-year fixed rate mortgages to begin to drop. Historically, after a rate hike session (that happened over the last 18 months), rate reductions usually occur about 6 to 8 months later. We expect interest rates at the end of 2024 to be at about 5.75%. We think they will fall further to 5% in 2025.
Will Home Buyers Have Trouble?
Our prediction is that there will still be some buyer issues. There are now buyers who originally qualified for loans based on robust pre-pandemic conditions. Now after weathering unemployment and increasing debt, they have lost their eligibility. Even one of our resale listings had this happen on two different contracts when the buyers couldn’t complete the mortgage process.
In the longer term, however, younger potential buyers will be delayed while they rebuild credit and replenish cash lost during the pandemic. There are currently 3 million families in the United States with household income over $150,000 that are still renting. Most of these are people who should be home buyers. If you are considering buying a home, you should read our Guide to Buying a Home and then contact us to help you with your search.
Older, more established buyers might need to make some adjustments so that they can move. This is the reason that buyer demand will continue to be strong well into the foreseeable future. We now know that there were slightly less than 4 million real estate transactions in 2023. Home sales should increase to about 4.6 million transactions in 2024 and again to 5.3 million in 2025.
Will Home Prices Come Down?
Our prediction for the real estate market in Maryland and Nationwide is that home prices will not fall. At worst, they will remain stagnant and will likely continue to rise.
The real estate and construction industries make up 16.8% of the U.S. economy. The new home market is still very strong.
Home builders continue to sell their inventory. Because their inventory is selling so quickly, they continue to raise their prices. This doesn’t help first-time buyers. The shortage of resale homes available is causing home prices to remain stable or continue to increase. The laws of supply and demand are at work here!
We also expect 2024 to be a very busy year. Our information shows, though, that the real estate market should begin to improve in the 3rd quarter of 2024. More homeowners will decide to become home sellers. If you’re one of them, you should read our Guide to Selling a Home as a way to start the process. We are available to help you make it happen. You can request a FREE market analysis so that you know the fair market value of your home.
We are always available to answer any questions or address concerns about the Maryland real estate market. If you are planning to relocate to another State, we can help you find the perfect agent using Our Nationwide Referral Network. Reach out to us using our Contact Form. We would be happy to discuss your individual situation.
