The One Banana, Two Banana, Three Banana Housing Market Outlook

November 22, 2024
  • Art Installation “Comedian” Just Resold For $6.2M As Possible Luxury Housing Market Proxy
  • Lower Mortgage Rate Expectations Scaled Back From Higher Inflation Risk
  • New And Existing Home Sales And Prices Expected To Rise Modestly In 2025

As either a sign of insanity, a strong economy, or a crypto disconnect, (gift link) a banana with duct tape art installation “Comedian” just resold for $6.2 million. In 2019, it first appeared at Art Basel Miami Beach with three (banana) editions that sold for $120 to $150 thousand and someone ripped one off the wall and ate it. That’s a thing because the new buyer also plans to eat it. Yet homebuyers are trying to figure out how to navigate a new outlook on mortgage rates since the election. Over the past couple of weeks, housing market observers have been recalibrating 2025.

Source: Wiki Commons
Source: Wikipedia

My take is that the duct tape part of the Comedian art installation didn’t get nearly the attention it deserved. My kids, when they were younger and living at home, went through a duct-tape-wallet phase. The product was quite useful but quite expensive, wearing a hole in the back pocket of about six pairs of pants. The Guardian’s Jonathan Jones wrote that the banana itself should not be mocked, as the banana itself is designed to mock “the market since it is patently not worth the price at which it is sold.”

We can get into the concept of valuation which is what my firm Miller Samuel has been doing for 38 years, but let’s save that for another day and eat, instead of mock, a banana instead.

But I digress…

One Banana – Fannie Mae Forecast

Fannie Mae released its November 2024 forecast with some revisions given that inflation expectations are now slightly higher which reduces the odds of mortgage rates falling as much as was thought a few months ago. Slightly higher mortgage rates are thought to rein in the potential sales upside but even with that change, home sales are predicted to be higher in 2025.

“We now project mortgage rates at the end of 2024 will be 6.6 percent (previously 6.0 percent) and 6.3 percent by the end of 2025 (previously 5.6 percent). This, in turn, was the primary driver of a meaningful downward revision to our total home sales outlook. We now expect 2024 total home sales will be 4.71 million (previously 4.77 million) and 2025 home sales will be 4.93 million (previously 5.24 million). For 2026, we forecast home sales will rebound to 5.68 million as mortgage rates ease, affordability improves modestly, and lock-in effects weaken.”

Two Banana – Calculated Risk Forecast Summary

Calculated Risk has summarized the initial forecasts here:

  1. “Forecasters expect house prices to increase next year in the low-to-mid single digits.“
  2. “Everyone expects multi-family starts to stay depressed in 2025.“
  3. “Everyone expects both new and existing home sales to increase in 2025, although existing home sales are expected to remain in the low 4 million range.“

Three Banana – HousingWire Mortgage Rate Expectations

I love the way HousingWire has visualized the mortgage rate range for 2025 providing a potential range of 7.25% to 5.75%.

Final Thoughts

We anticipate an uptick in the New York luxury market for 2025 – it’s already evident in the surge in newly signed contract activity going on right now. Here’s a little take from me and my friends Kael and Noah from the balcony of a 60th-floor $25 million Manhattan penthouse. Despite the loss of deeper mortgage rate cuts, exaggerated cash usage, which skews toward luxury purchases, should help the higher end of the housing market outperform the remainder of the market which is more mortgage rate dependent. On top of this, many potential homebuyers who have been waiting for rates to fall while life moves on will probably show modest sales gains from those who can afford the higher costs.

Rats provide proof people want to live in NYC as housing costs remain high.

Did you miss the previous Housing Notes?

November 20, 2024

Sun Belt State Housing Market Property Taxes Heat Up

Image: ChatGPT

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