The 2024 Outlook by LandVest: Part 1

The 2024 Outlook by LandVest is a 3-part series of analysis and insights on the investment land and luxury residential markets. The perspectives outlined in this series are informed by performance in our investment land, residential, and fiduciary consulting business units and in consultation with over 70 real estate professionals from brokers to appraisers and fiduciaries serving New England families. Part 1 By Joseph Taggart, President

2024 Luxury Residential Home Sales: Does Affordability Matter?

In an effort to forecast 2024 residential home sales, I’ve been looking at 2023 and comparing it with historic trends in the existing home market. My analysis focuses on data from the Federal Reserve Bank, the National Association of Realtors, and the US Census Bureau, dating back to 1984. While these data reflect some relatively predictable trends, I also uncovered some startling revelations. This short piece outlines how 2023 is stacked up against the last 40 years and provides our predictions for the 2024 housing market.

2023 ended the year with approximately 4.09 million existing home sales. This represents an 18.7% decline from 2022 and is the lowest recorded rate since 1995 when just under 4 million existing units traded. What surprised me most was the fact that the US population in 1995 was 226 million, compared with 334 million in 2023. I assumed that a 25% increase in population would drive home sales.  Obviously, there were other exigent variables, such as home prices, income, and interest rates which were affecting transactions. So I investigated further.

I made the basic assumption that existing home sales were driven by affordability, which is a function of home sale value, income, and mortgage rates. I calculated affordability for the last 40 years and ran a regression against home sales per capita. There was no statistical relationship.

Perplexed, I then compared sales per capita against just mortgage rates. Although the relationship improved slightly, there was still no statistical correlation.

Reflecting on the lack of population influence in the empirical observation, I then simply compared existing home sales vs. affordability. This yielded a noticeable (but weak) correlation.  Finally, I just looked at total home sales against mortgage rates, and there it was – a positive correlation.

What does this mean? The data suggests that the consumer is agnostic to median home sale value, median income, and even population dynamics. Instead, home sales appear to be hyper-driven by just mortgage rates. Upon reflection, this makes some sense. While lower mortgage rates clearly stimulate buyer activity, they also fuel seller activity, thereby creating inventory. While the high-rate environment has spurned buyer interest, it has also handcuffed sellers.

This analysis allows us to create models which mathematically predict buyer and seller activity, based on forecasted drop in mortgage rates. By applying our regression analytics to current and expected rates, LandVest is forecasting a total of 4.9 million existing home sales for 2024. This represents a 19.8% increase over 2023.

Comparing the luxury market to median home sales, we anticipate a slightly greater increase of 21.0% in LandVest’s book of business for 2024. While this may seem like an optimistic forecast, it puts us modestly in line with the sales rate of 2022, and still 20% off the recent peak of 2021.

The 2024 Outlook

The 2024 LandVest Outlook is a 3-part series of analyses and insights on the investment land and luxury residential markets. The Outlook is informed by performance in our land, residential, and fiduciary consulting business units. Next in the series, Vice President & Managing Director Slater Anderson shares results from our monthly and annual buyer and seller surveys to gauge market sentiment.