Federal Reserve officials are planning to reduce interest rates this year, which could lead to a decrease in commissions for real estate agents following a major settlement. President Biden is also exploring ways his administration can address high housing costs. These changes are shaping the housing market, where sales have slowed due to higher interest rates, but home prices and rents remain elevated. Economists anticipate that cost increases will be moderate in the coming year, although actual price drops are unlikely in most markets, especially for home purchases.
One major change expected is a reduction in interest rates. Mortgage rates have climbed as high as nearly 7 percent, up from below 3 percent just a few years ago. However, with the Fed projecting several rate cuts this year and next, mortgage rates could drop to around 6 percent by the end of 2024. Cheaper borrowing costs may make it more affordable to purchase a home and could encourage more homeowners to sell, increasing housing supply.
Additionally, the National Association of Realtors settling a series of lawsuits could impact broker practices. Pending court approval, agents working with home sellers may no longer be required to clearly advertise compensation for buyers’ agents, potentially lowering the industry standard commission of 5-6 percent. While this change could save money on transaction costs, home sellers are still likely to price their homes competitively.
President Biden has proposed policies to address high housing costs, including increasing rental assistance and building or rehabbing housing units. However, passing major housing legislation may be challenging this year. Despite this, the administration is taking steps to reduce costs associated with home buying. Housing supply in rentals has improved recently, but the supply of for-sale houses remains limited due to lower home construction and fewer sellers putting houses on the market.
Overall, the housing market could see slower and steadier price increases in the coming months, with a return to more normal conditions. While prices are unlikely to drop, the market may stabilize as demand remains strong and builders respond to market conditions.
