Owning a home is a goal for many Americans. Nearly two-thirds of Americans own a home, a rate that has been fairly steady since 1990. For those looking to buy their first home, trade up, or downsize, they’ll need to be informed about the real estate market. In 2023, the real estate market was ultra-competitive for buyers due to record low housing inventory. Many prospective home shoppers wonder when the landscape for home buying will improve so they can jump in and find their starter home or maybe even a forever home.
What will the real estate market look like in 2024? Will the situation ease for hopeful homeowners? We can’t make any guarantees, but let’s dig in to see what real estate experts and economists have to say about their housing market forecast.
Will House Prices Go Down in 2024?
One of the key questions prospective homebuyers have is whether or not the price of homes will go down in 2024. It’s happened before – can it happen again?
This chart from the Federal Reserve Bank of St. Louis shows that home prices rose steadily from early 2013, then had a slight dip in 2018, followed by a sharp rise starting around spring 2020 until the end of 2022. The median home sale price – meaning that half sold for more, and half sold for less – topped out at nearly $480,000 near the end of 2022. Then, a brief decline followed before prices began to rise again in early 2023.
Will home prices decline in 2024? Unfortunately, industry experts predict no, because the supply of homes is still constrained. In March 2023, CNN reported that the United States has a housing shortage of 6.5 million units as home building (both rental and for-sale) has trailed behind the rate of population growth and people forming their own households. Though this housing shortage has been brewing for over a decade, 2022 saw 10.6% fewer single-family homes start construction compared to 2021, so the pipeline of new construction homes coming into the market has also declined.
The National Association of Realtors has a housing shortage tracker on their website visualizing the metropolitan areas where the housing shortage is more prevalent. In the market for a home? This can be a helpful resource to better understand the situation in the area or areas you’re considering in your home search.
In addition to the shortage of units, there’s a second aspect exacerbating the home-price issue. Many homeowners are “rate locked” where if they sold their home to move into a new one, they would give up their low mortgage rate and have to borrow at a higher one. As of June 2023, over 90% of homeowners in the United States with a mortgage had an interest rate of less than 6%. With mortgage interest rates higher than that as of this writing, many homeowners are choosing to stay put in their homes. That means with fewer homeowners selling homes to trade up, downsize, or relocate, there is less inventory to choose from – and prices rise as people compete over the already limited options.
However, the United States is not a monolith. Different regions and metropolitan areas will have their own real estate pricing dynamics. For example, Zillow’s October 2023 Housing Market Report found, “home values are up the most since last October in Hartford (+11.4%), Milwaukee (+8.5%), Providence (+7%), and Boston (+6.8%)” while, “Austin (-9.2%) and New Orleans (-9%) have seen the biggest home value drops over the past year.” Month-over-month or year-over-year increases and declines in home values may not directly correlate to related home price changes, since not all homes are for sale. Though, values do play a role in home sale prices because mortgage lenders will only loan up to the value the house appraises for.
If you’re home shopping, it’s always worth looking for research in your local market to get the most relevant information.
How Much Will Home Prices Go Up In 2024?
Though homeowners are competing for a limited supply of homes, there is still a limit to how much people can and will pay, and demand for homes is an important dynamic driving price. Home shoppers may be nearing their price limits. In July 2023, Lawrence Yun, the chief economist from the National Association of Realtors predicted that home prices will go up 2.6% in 2024. For a median priced home at $431,000 in Q3 2023, that could look like a median priced home being $442,206 in 2024 – still down from the peak, but up from this point in time.
For house shoppers (or browsers) it’s important to remember that the average home sale prices are seasonal. For the most accurate research on price comparisons, compare one month of the current year to the same month of years prior. If you’re looking to lock in a lower home price, it can be worth shopping in the winter when home prices can be up to 13% less than the summer peak.
Will Mortgage Rates Go Down in 2024?
The next burning question home shoppers have – will mortgage rates go down in 2024? No one knows for sure, but there is some good news: industry experts predict yes, they will!
At the end of October in 2023, mortgage rates hit 8% – a nearly 23 year high. Higher interest rates add hundreds or thousands of extra dollars per month to the housing payment depending on the price of the home, which makes homes even more costly. Luckily, according to this article written on November 21, 2023, the average 30-year fixed rate mortgage has come down to 7.74% – so mortgage rates could decline further in 2024.
In October 2023, Fannie Mae reported predicting that in 2024, the annual average rate will be 6.9% for a 30-year fixed rate mortgage. In the same month, the Mortgage Bankers Association predicted that the 2024 average rate for a 30-year fixed rate mortgage will be 6.1%.
When will mortgage rates go down? CBS news reported that Nick Bailey, President and CEO of real estate company RE/MAX said, “I believe that we’ll see similar rate activity in the first half of 24, but it wouldn’t surprise me if rates go down in the second half.”
What evidence might support these predictions? The Federal Reserve has been raising interest rates over the last 18 months in an attempt to cool inflation. The Associated Press reported that on November 1, 2023, the Federal Reserve opted to keep the benchmark interest rate steady at about 5.4%, though communicating future rate increases are still a possibility. Of course, the lack of a rate hike is not the same as a rate decrease. However, it’s a departure from the Fed’s actions and signifies that it’s possible the economic policy will change in such a way that opens the door for lower mortgage rates.
New Home Construction in 2024
With resale home inventory tight due to lagging home construction over the past decade and many homeowners being rate locked, many prospective home buyers are eyeing the new home construction market closely as their chance to buy. Fortunately, new home construction is expected to increase compared to years prior.
Yun, the chief economist for the National Association of Realtors shares, “newly built homes account for a small share of the home sales market, generally around 10%. But builders have grown that percentage this year and will make further gains in 2024.” As of October 2023, Redfin reported that just over 30% of homes for sale are new construction – which is the highest share in over twenty years.
Homebuilders are also getting competitive to attract potential buyers to their homes. According to John Burns Research and Consulting, about 60% of homebuilders are offering mortgage rate buydowns to help their customers buy homes. Homebuilders can afford to do so because builder profit margins increased sharply from about 20% in Q2 2020 to over 28% two years later (then down slightly more recently). They are able to use that cash flow to compete with resale home sellers because they can offer attractive financing options.
Conclusion
While no one knows for certain what will happen with the real estate market in 2024, we can glean some insights about possibilities from industry experts and by looking at the state of the economy. The housing market forecast looks like there may be signs of improvement on housing inventory to choose from and borrowing rates, which may make it more feasible for home-buying hopefuls. If you’re actively house hunting, we wish you the best of luck finding a great home that meets your needs. If you’re casually browsing home listings or hunkering down in your current home for the foreseeable future, we commend you for staying informed about the real estate market!
Keep reading on the Milli blog:
How To Prepare to Buy a House
Should you Invest in a Residential Rental Property or REITs?
Money on the Mind: The Psychology Behind Your Finances
