Proceeding With Caution
Local financial experts offer their outlook for 2024.
Last month BUILD Des Moines shared perspectives on 2024 from a number of area builders. This month we hear from experts on the financial side of the industry.
Leaders in both fields see the same factors at play—potential changes in interest rates, the state of the economy, and an uncertain political climate. However, their conclusions vary slightly.
Perhaps the nature of their respective industries leads builders and developers to tend to focus on the positives, seeing encouraging signs that sales will continue to rise, while financial leaders take a more cautious approach.
While anticipating growth in the market for 2024, rather than a continuation of the stagnant or declining sales many builders experienced in 2023, lenders are focusing on their role as financial advisor, helping homeowners make wise financial decisions no matter what the market does.
Whatever the reasons, the consensus from lenders seems to be think positive, but proceed with caution.
Kim Downing-Manning
Bankers Trust
“We anticipated 2023 to be a slower year for mortgage activity and home sales, but I have higher hopes for 2024,” says Kim Downing-Manning of Bankers Trust.
All signs indicate that rates will drop as 2024 gets underway. However, multiple factors are likely to prevent a major change. “Mortgage interest rates dropped just over 1% at the close of 2023, and the Fed has been hinting that they’ll cut rates in 2024,” says Downing-Manning. “However, with inflation still being a concern, we may not see the Fed do anything dramatic.”
Downing-Manning suggests most potential buyers are taking a wait-and-see approach and that more will enter the market as peak season gets closer.
“It’s important to note that current rates are actually not unusually high. Those unbelievably low rates from a couple years ago were the deviation, and we aren’t likely to see those again for many years. Homeowners who might like to move but have a mortgage with the interest rate below the current percentage may be hesitant to pursue that move right now,” she adds.
Educating consumers has always been the objective of the best lenders. During the past several years, it has become more important than ever.
Downing-Manning says, “When rates are low, finding the right mortgage package seems easy. But when rates rise, that process gets more complicated. Making sure our clients are getting the best financial package for their budgets requires understanding their current situation, advising them on the long-term situation, and helping them make a decision that fits both.”
Ultimately, interest rates are only one factor in that client discussion.
“Lower rates are always good. They help everyone,” says Downing-Manning. “But the monthly payment and the long-range plan have much more effect on the budget. You have to look at what property taxes are likely to be, what insurance will cost, and so much more.”
After more than 40 years in the financial industry, Downing-Manning says 2023 was one of the most challenging. “My hope for 2024 is that interest rates will decline to a level that encourages more potential buyers to enter the market. At the same time, that’s also the greatest challenge I foresee. While I do think home sales will pick up slowly this year, we would have to see major rate decreases for there to be a dramatic change.”
Downing-Manning says focusing on helping first-time buyers enter the market has to be a priority for everyone in the industry in order to see long-term growth. “For everyone involved in home construction and sales, finding ways to help first-time buyers will trigger sales up the chain, and that has to happen to keep the market strong.”
Kim Downing-Manning, Vice President / Senior Lender
Bankers Trust
(515) 222-2013
NMLS ID#: 571176
kdowning-manning@bankerstrust.com
Vicki Davis
Iowa Trust Bank
If industry predictions hold true, Iowa Trust Bank’s Vicki Davis sees 2024 activity remaining steady overall.
“With all the uncertainty of the past year, that’s actually an encouraging sign,” she says. “Those incredibly low rates and high volumes we had seen were not the norm, so remaining fairly steady is a good thing. Rates have already begun decreasing. And everyone anticipates that will continue, but at a gradual pace.”
Although volume was down as anticipated in 2023 as a result of higher interest rates and increased home prices, Davis expects volume to begin rising again throughout 2024. “We may even see some renewed interest in refinancing,” she says. “That portion of the market had dwindled to almost nothing when rates went up. But homeowners who did buy when interest rates were higher may benefit from refinancing if rates drop a bit more.”
Although Iowa tends to remain steadier than some more volatile areas of the U.S., most of the country is experiencing similar slowdowns. “Nearly everyone is facing a slower housing market right now,” she says, “but there are definitely parts of the country that are struggling more than we are. Iowa doesn’t typically experience the same volatility that other parts of the country see.”
Davis sees encouraging signs for the local housing market this year. But several factors will determine the level of growth. “So many potential buyers are taking a wait-and-see attitude that it’s impossible to put a time frame on when things will really turn,” she says. “Factors like the election and consumer confidence will certainly play into that in some way.”
As financial experts stress, the conversation with homeowners focuses on payment, not on rate. Davis says that becomes even more crucial during periods of uncertainty. “It’s especially important to educate first-time buyers on all the factors that will affect whether a home is in their budget or not. But buyers at all levels can get focused on interest rates and the purchase price they can expect to afford. Many other factors play into that monthly payment. So our role as lenders is less about making it possible for them to buy a specific home than it is about educating them on the long-term and the payment they can really afford.”
Davis says that remains the biggest challenge for 2024—directing the focus for potential buyers, especially in light of so many unknowns related to the current economy. “The fear of the unknown affects everyone, and right now that’s more true than ever with the upcoming elections and interest rates.”
Despite that, Davis is encouraged as the year begins. “There are some great financial products available and options for buyers. And even in an uncertain national economy, we live in a great area where home ownership is still affordable. Builders and lenders and community leaders still see home ownership as a priority, and that benefits buyers at every level.”
Vicki Davis, Senior Vice President Mortgage Banker
Iowa Trust Bank
515-238-9390
NMLS# 406039
vdavis@iowatrustbank.com
Jason Froehlich
HomeServices Lending
“In my 30 years in the financial industry, I have to admit that 2023 was one of the most challenging,” says Jason Froehlich of HomeServices Lending. “But I’m an eternal optimist, and I still look back on the year and see a lot of positive things.”
Despite low inventory in many segments of the market and interest rates that didn’t fall as experts had predicted earlier in the year, other factors allowed the housing market in central Iowa to remain fairly stable.
“Home values held strong, which put sellers in a good position for 2024,” he says. “And interest rates peaked in October and began dropping gradually as the year came to a close. Both of those factors are good signs for the year ahead.”
Along with declining interest rates, Froehlich says inflation also seems to be dropping, which is good news for home sales. “To encourage the drop in inflation, the Fed has hinted that it may lower interest rates as many as three times during 2024,” he adds. “If that’s true, the rates will drop more slowly, but that will actually be better for the market. We’re less likely to get a rush of buyers that could drive prices up.”
Froehlich says HomeServices created several products last year to address many home buyer concerns, and those products remain an option through 2024 at least.
“We have a Refine Your Rate Guarantee that helps pay closing costs if a homeowner borrows through HomeServices and chooses to refinance at a lower rate within a specific time frame,” he says. “And we took the preapproval concept a step further, underwriting the preapproval with a Pre-Commitment and On-time Closing Guarantee, which really benefited both buyers and sellers and made the closing process quicker.”
HomeServices is also developing programs specifically for first-time buyers that will help them enter the market in a time when that’s become increasingly difficult. “We’ve always made it a point to talk with builders, agents, and home buyers to find out where those pain points are in the market at any given time,” says Froehlich. “Those conversations enable us to adjust our products to alleviate some of that pain and to better educate our clients on the options available.”
Entering 2024, Froehlich says the most significant challenge is the unknown. “You can’t prepare for what you don’t know. And there are so many factors that just can’t be predicted accurately—the geopolitical climate, consumer confidence. We have to help clients slow down and talk about their needs and their debt situation so we can always offer the most-sound financial advice possible.”
He says the first two quarters will see increased activity, and that is an encouraging indication of how 2024 will play out. “There is some pent-up demand out there that will become evident as rates drop. And if that happens gradually, as expected, 2024 should be a better market overall.”
Jason Froehlich, President
HomeServices Lending
(515) 453-7872
NMLS# 648374
jasonfroehlich@homeserviceslending.com