2024 is here and everyone is wondering what the new year will bring for the Silicon Valley real estate market. Will we continue to see the market stagnation that overtook 2023? Will we return to the boom and bustle of 2021? Will we see drastic ups and downs like 2022? Many are wondering if 2024 is the right time to buy or sell homes in Silicon Valley. Trust us, you are not alone with these questions.
We recently released a blog titled “What We Can Expect From Interest Rates in 2024?”. This is a great read that can help you understand where interest rates are at right now and where they are likely to go in 2024. The blog also highlights the historical background of why and how interest rates got to their current position. Because the market is constantly evolving and things change quickly, we decided to provide a more recent update for those thinking of selling, investing, or purchasing a home in Silicon Valley.
We are the Veeravalli Team at The Agency Los Gatos, a luxury boutique real estate brokerage in Silicon Valley, and we aim to empower our clientele with the latest information they need to make insightful real estate decisions that achieve success.
THE LATEST UPDATE
One of the most direct ways to gauge the state and future developments of interest rates is the action of the Federal Reserve. The Federal Reserve System, or simply “The Fed,”, is the central banking system of the United States. The Fed sets the Federal Funds Rate which is the interest rate at which banks lend to each other overnight in the federal funds market. This Federal Funds Rate in turn affects the interest rates throughout the economy as a whole.
The Fed held its latest meeting on December 13th, 2023 and it resulted in strong reactions from the media, consumers, and the economy as a whole.
Here are some key takeaways to understand:
- The Fed decided to keep interest rates steady at 5.25%-5.5% for the 3rd consecutive meeting
- The Fed’s statements about their latest quarterly economic projections suggest at least three quarter-point rate cuts in 2024
- The Fed appears to be satisfied with current progress towards leveling off historically high inflation but still sees work ahead on that front
- Markets rallied after the news from The Fed with stock prices seeing considerable increases
Chart represents Federal Funds Rates increases since 2022. Source: CNBC via Federal Reserve Bank of New York
As you can see illustrated by the chart above, interest rates have stayed steady for a while now.
Clearly, there is a sentiment within the Federal Reserve and the markets as a whole that the economy is moving in the right direction. Inflation is going down and employment has stayed consistently strong even under serious pressure.
It is important to understand that even though The Fed has only raised interest rates once since May, no official rate cuts have been announced. However, we can surmise by The Fed’s updated quarterly economic projections that we should expect several interest rate cuts in 2024.
In theory, this should stimulate the mortgage lending market and influence more buyers, many of whom have been waiting patiently on the sidelines, to enter the market. Said buyers who have been held back by high interest rates or fear of growing interest rates will likely enter the market once they see concrete evidence that interest rates are starting to go down.
An essential fact to remember here is that The Fed’s monetary policy follows a dual mandate of promoting maximum employment and achieving stable prices — not increasing the sales prices of Los Gatos real estate listings. Understanding the key goals of the Federal Reserve will help you better forecast their decisions and in turn optimize your timing with buying or selling homes in Silicon Valley.
WHAT TO LOOK FOR NEXT
Mortgage lenders are already responding to the latest news from The Fed with optimism. Many Silicon Valley mortgage lenders are already lowering the interest rates for their mortgage products. This signals that there is a strong sense of belief among the home-purchase lending community that interest rates will be going down nationally soon.
As chronicled in this latest update from The Agency’s blog — “Mortgage Rates Dip as The Fed Signals Rate Cuts in 2024,” for the first time since August, interest rates on mortgages have dropped below 7%.
This is promising news and is likely to drive a new wave of buyers into the market. Simply said, mortgage rates in Silicon Valley are expected to go down early in 2024.
This is a very positive development after this past October when mortgage demand dropped to its lowest levels since 1996 in the United States. At that time, mortgage rates hovered around the mid-7s. Potential buyers were reacting negatively to constantly rising interest rates and were hesitant to act.
But with The Fed's optimistic forecast and the quick reaction by mortgage lenders to already begin lowering rates, this may be the straw that breaks the camel’s back and starts a slow and steady drop in rates and conversely a slow and steady rise of buyers in the market.
As the case usually goes in real estate — more buyers should drive more demand and competition which will in turn lead to more listings and higher sales prices.
What’s going to be important is to keep an eye on upcoming Federal Reserve meetings. The Fed meets 8 times a year and their actions have a huge impact on the market.
Chart represents the schedule of the latest and upcoming Federal Open Market Committee (FOMC) meetings for 2024. Source: Investopedia
Your Silicon Valley REALTOR® should be keeping a close eye on these meetings and the developments that follow. At the Veeravalli Team, we always strive to make sure we are up to date on the latest federal monetary policies and understand how it may affect our local markets and clients.
As long as we avoid any more rate hikes, which at this point seems likely, we can then enter a timeline of gradually lower rates. It will take some time, but we do predict that mortgage rates will decrease this year.
FINAL THOUGHTS
As we enter the new year, momentum is on the side of lower mortgage rates for 2024. After historically low mortgage applications in 2023, we should be seeing a steady decrease in mortgage rates and a steady increase in mortgage applications.
All signs point to several Federal Funds Rate cuts for 2024, important actions that affect the economy as a whole. The national rate cuts will continue to motivate lenders to place lower and lower interest rates on their mortgage products.
If you are thinking about making a real estate transaction in Silicon Valley in 2024, the time may be right to begin looking into how to obtain the funding you need.
It is also important to consider that 2024 is an election year. Historically, that typically means that the Federal Reserve will likely avoid making any major policy moves. They will most likely continue the course with their current strategy. This suggests to us that we should see a steady continuation of what we are seeing now — which again is an incremental reduction of mortgage rates.
Finally, a sentimental thought to get our heads out of the financial bubble. It is a new year, and a lot of people in San Jose, Campbell, Los Gatos, and beyond have decided that they are at the point in their lives where they are ready to buy or sell real estate. Many have been on the sidelines just waiting to get in the game, and this sense of optimism could drive them into the market. Even though The Fed hasn’t cut rates yet, inflation is still a real concern, the economy is still in an uncertain place, many are making it their New Year's Resolution to commit and take the next step in their lives by buying or selling real estate in Silicon Valley.
As the old saying goes, “It’s not when the market is ready, it’s when you are ready!”
Does that sound like you? We at the Veeravalli Team would be honored to serve as your real estate advisors and help you achieve your real estate dreams in 2024.
Are you looking for the top Los Gatos REALTORS® at The Agency? Follow the Veeravalli Team for an exclusive look at Los Gatos, Cambrian, Campbell real estate and more.
Ashwin Veeravalli
(408) 784-6595
LIC.# 01914395
Aparna Veeravalli
(408) 887-0330
LIC.# 01952626
The Agency Los Gatos
