Harbingers of real relief from inflationary pressures will come in the second half of 2024, as the U.S. economy deals with — if not a recession — definitely an economic slowdown, said Susan Wachter, professor of real estate finance at the Wharton School.
That relief, which will not occur until the following year, is behind the "survive until '25" mantra mentioned by Wachter. The phrase has also been on the lips of others at this year's Mortgage Bankers Association convention in Philadelphia.
"I do think that 2025 will be a far better year, it will be a strong year," Wachter said. "We will see inflation come down substantially, and as it does, I think we might be surprised at how fast longer-term Treasurys and mortgage rates and this premium over Treasurys will come down."
The current negative trends, including the imbalance in housing supply will reverse, not just for 2025, but also for a strong second half of the current decade, she said.
Rates need to come down and the recent letter that the Mortgage Bankers Association joined with the National Association of Home Builders and the National Association of Realtors to the Federal Reserve "was so on the mark," Wachter declared.
If the Fed doesn't create that attitude of calm, "we have further instability in our markets; we need to see stable markets," Wachter said. "We have fortunately a stable mortgage system and we have a sound mortgage system."
But the macroeconomic environment has to come around, she continued.
Home prices will ease in the future or slightly decline, but how they got to where they are was fundamentally sound, unlike what happened leading up to the Great Financial Crisis.
Because it is not a bubble, no "tsunami of foreclosures" is on the horizon. "We're not overleveraged, we're not overbuilt, quite the contrary," Wachter said.
