Meet Odeta Kushi, the Deputy Chief Economist at First American Financial Corporation. Odeta is a leading economist in research and commentary on the US real estate sector and broader economy. She holds a bachelor’s degree in economics from St. John Fisher University, a master’s degree in applied economics from Northeastern University, and is completing her Ph.D. in economics at George Mason University.
Odeta was born in Durres, Albania and migrated to the US with her family in 1998, settling in Rochester, New York. She was raised by two hard working parents who helped develop her strong work ethic and shaped her academic and professional career. Her passion for economics stemmed from its interdisciplinary nature, blending Odeta’s interest in political science, math, history, and statistics, and offering her the opportunity to apply quantitative skills to solving real world problems. She is known for her data driven approach in her professional undertakings, leveraging her analytical skills to conduct insightful economic research. Her research has been published in leading business and industry trade publications, including The Wall Street Journal, Business Insider, U.S. News and World Report, Fox Business, HousingWire and Inman News. She has also made appearances on top national business media groups such as CNBC, Yahoo! Finance and Reuters TV.
The following interview dives into the current state and trends of the US housing market.
As we head into the home-buying season in FY 2024, what are some general expectations buyers and sellers should be aware of as you consider factors like mortgage rates, supply & demand and affordability ?
The decision to buy or sell a home is both a lifestyle and financial one. From a financial perspective, it comes down to a payment-to-paycheck calculation, which is influenced by income, mortgage rates, and house prices.
Mortgage rates: With inflation proving stickier than expected and the market believing that rates will stay “higher for longer,” mortgage rate expectations have drifted higher for this year.
House Prices: House prices are set at the intersection of supply and demand, such that a market characterized by a dearth of supply and high demand would yield higher house prices. While housing supply remains historically low, inventory has been rising heading into the spring home buying season, which can help alleviate the pressure on fast house price appreciation and give potential buyers more choice. House price growth is likely to remain positive, but at a more moderate pace in 2024.
Household income: Even though household income has been growing, it has not been enough to offset the affordability loss from higher mortgage rates and rising nominal prices heading into spring.
There are plenty of potential buyers sitting on the sidelines, but more inventory and improved affordability are necessary to coax them into the market. It’s not advisable to try and time the market, so the decision to buy or sell should be both a financial and personal decision. For those that have found a home that fits both their lifestyle needs and their budget, buying a home may be attractive and financially prudent this spring.
Do you anticipate a housing recovery in FY 2024?
A significant rebound is unlikely but modest improvements are expected in 2024. The Federal Reserve still expects rate cuts later this year but wants to see more evidence that inflation is slowing. As such, any boost in housing market activity from lower mortgage rates likely won’t materialize until the second half of the year. Even then, mortgage rates aren’t likely to decrease enough to ‘unlock’ most homeowners, so supply will remain limited. Demographic factors, such as millennials aging into their prime home-buying years and making the decision to start a family and settle down, puts upward pressure on homebuying demand. However, in the short-term reduced affordability and limited inventory may lead them to delay, but not forego, their transition into homeownership. I expect 2024 to be a year of transition- not pandemic hot, nor frozen cold, but it may not be quite right either.
Why should we care about interest rates? Could you explain how fluctuations in mortgage rates influence home sales and buyer behavior, particularly in relation to timing the market and making purchasing decisions?
Higher mortgage rates have a dual impact on the housing market – reducing affordability for buyers, all else held equal, and strengthening the rate lock-in effect for potential sellers. Approximately 90 percent of existing homeowners are locked into mortgage rates below 6 percent. Rates are now closer to 7 percent, so these homeowners do not have a financial incentive to sell. The rate “lock-in” effect prevents more housing supply from reaching the market and reduces the ability of buyers to find a home they might want to buy. The combination of reduced affordability and the rate lock-in effect suppresses sales activity because you can’t buy what’s not for sale.
The opposite is also true. When rates decline, it should boost house-buying power, all else held equal, for potential buyers and help ‘unlock’ rate-locked in sellers.
What sort of advice would you give to first time home buyers regarding optimal timing and the potential impact of future mortgage rate changes?
For potential home buyers, it’s important to shop around for a mortgage rate. Consumers can get a unique quote from every lender, so failure to shop is money lost. And, of course, no matter the mortgage rate, it’s important to set a budget and stick to it.
For those potential home buyers who are priced out of their desired home in today’s market, it might pay to wait. Sitting on the sidelines may allow a potential buyer to continue to pay down their debt, build up their credit, and save for the down payment and closing costs.
