A Look at trends upward in the spring—historically increasing by about 30%—this year might see a more moderate 20% rise. However, the 5.3% year-over-year drop in contract signings raises concerns about a slowdown in momentum.

Some positive signs, however, emerge from market sentiment. Reports from the field indicate higher open house attendance and increasing buyer activity. If this trend translates into more offers and signed contracts, we might see a more active spring market despite current slow numbers.

Credit Spreads: Are There Warning Signs?

A major macroeconomic indicator is credit spreads—the difference between corporate bond yields and U.S. Treasury yields. A widening spread signals financial stress, while narrowing spreads suggest stability.

Currently, credit spreads remain low, indicating a stable economic environment. Though there was a slight rise between December and January, we are still in a low-risk zone (DEFCON 1.6). Typically, concern grows at DEFCON 2.2 or higher, where market volatility tends to spike.

In short, there are no immediate red flags, but it’s worth keeping an eye on credit spreads as the year progresses.

Interest Rates and Federal Reserve Outlook

Interest rates remain a dominant force in the real estate and financial markets.

Looking at Federal Reserve policy, futures markets now predict two interest rate cuts in 2024—one in June and another in October. This is a shift from prior expectations, reflecting a more cautious approach due to resilient economic data.

Key takeaways:

• Mortgage rates: With projected Fed rate cuts, mortgage rates could trend lower, possibly settling in the 6.5%-6.75% range.

• Consumer strength: Strong consumer spending, particularly in travel and entertainment (Amex data shows a 9% increase), supports economic resilience.

• Inflation pressures: Rent, a major Consumer Price Index (CPI) component, is showing signs of easing, potentially lowering overall inflation.

The Federal Reserve's stance will remain fluid, but for now, markets expect rates to remain stable until mid-2024, with potential cuts later in the year.

Real Estate Inventory Trends: Regional Differences

A stark contrast is emerging in housing inventory levels across regions.

• Northeast: Manhattan and surrounding markets have far less inventory compared to pre-pandemic levels, keeping supply tight.

• Florida: Inventory has doubled compared to pre-pandemic levels, signaling a cooling market.

This divergence highlights how different real estate markets are behaving based on local supply constraints, migration patterns, and affordability.

The “New Normal” for Mortgage Rates

Many buyers have been waiting for a return to the ultra-low mortgage rates of 2020-2021, but that era is over. The market is adjusting to 7% mortgage rates as the new normal. Buyers are beginning to move forward with purchases despite higher borrowing costs.

Additionally, banks and lenders are offering rate buydown programs to help offset higher interest rates, making deals more attractive in certain price ranges.

What’s Next?

As we look ahead, here are the key themes to watch:

1. Spring Market Trends: Will inventory rise as expected, and will buyer demand keep up?

2. Federal Reserve Policy: Rate cuts in June and October could support real estate and financial markets.

3. Credit Market Stability: So far, credit spreads indicate stability, but any major shifts could signal trouble ahead.

4. Consumer Behavior: Strong spending suggests economic resilience, but will it hold up if rates remain high?

5. Regional Real Estate Differences: Low inventory in NYC vs. surging supply in Florida—how will these trends play out?

The market is moving in a jagged pattern, with volatility but no clear long-term downturn signals yet. Manhattan’s real estate remains resilient, and as we enter the spring buying season, we’ll see if demand picks up as expected.

Stay tuned for more updates as we track these trends!