The housing market has suffered dramatically over the past year, with buying and selling activity deterred by soaring mortgage rates and a stark scarcity of available homes. This has resulted in a seemingly paralyzed market. Many are wondering whether 2024 will be the turning point for this stagnation. The answer is nuanced.
Projections from Realtor.com® for 2024 suggest a slight improvement in affordability. Economists there do not foresee conditions worsening for buyers, which marks a change from the most severe affordability issues seen since the 1980s.
According to Danielle Hale, Chief Economist at Realtor.com, 2024 is expected to bring incremental progress rather than a full-scale resolution to the housing market’s current standstill. She predicts that the downward trend will cease.
Despite a forecasted stabilization, the market is likely to remain challenging. Predictions from the Realtor.com annual forecast indicate that home prices will not drop significantly, mortgage rates will not decrease as hoped, and homes ready for immediate move-in will continue to be in short supply, especially in sought-after locations. Nevertheless, these conditions are expected to vary by region.
The general eagerness to end the housing deadlock indicates that the necessary conditions for a significant shift still need alignment.
Home prices are projected to decline.
There’s positive news on the horizon: it’s forecasted that home prices will start to decline in 2024.
However, it’s not time for celebrations or concerns just yet. The anticipated decrease is a modest 1.7%, which is unlikely to provide significant financial relief to most buyers. But this means buyers can take a breath without fearing escalating prices if they don’t rush into a purchase.
This slight downtick should allow wages to catch up with the currently elevated home prices gradually. Historically, home prices have seen an average annual increase of 6.5% from 2013 to 2019. The pandemic worsened the issue, with many unable to save quickly enough as prices soared. The upcoming year is looking to bring a pause to this rapid inflation.
The forthcoming minor price reduction will offer much-needed respite from the continuous upsurge in home prices, easing some of the urgency and stress for prospective buyers.
The expected drop isn’t drastic enough to deter sellers from selling their homes. Most homeowners who have held onto their properties for a few years are likely sitting on a considerable amount of equity due to the sharp increase in property values.
Therefore, even with a slight price drop, it’s improbable that many homeowners will end up with mortgages that exceed the value of their homes, unlike during the Great Recession.
There will be a slight decline after substantial price growth over the past ten years.
Mortgage rates are anticipated to experience a slight decrease.
The housing market has taken a heavy hit from escalating mortgage rates.
Over the past three years, rates for 30-year fixed-rate mortgages have climbed from just above 2% to over 7%, based on Freddie Mac’s figures.
The econ team at Realtor.com predicts that rates will hover around 6.8% on average for the year, with a potential dip to around 6.5% as the year closes. This represents a drop of roughly eight-tenths of a percentage point from last week’s rate of 7.29% reported by Freddie Mac, yet remains substantially above the average rate of 4% from 2013 to 2019.
Even minor rate fluctuations can significantly affect monthly payments, mainly when home prices are steep.
However, the expected rate decrease may need to be more substantial to reinvigorate the sluggish housing market.
In 2024, buyers with median incomes are forecasted to allocate, on average, 34.9% of their income to housing payments, with the potential to fall below 30% by the end of the year. While this is an improvement from the 39% recorded in October, it’s still well above the 21% that was typical from 2016 to 2019.
Hale comments on the harsh reality that rising mortgage rates have sidelined many prospective homebuyers by inflating borrowing costs at a time when home prices are also near peak levels, creating an overwhelming barrier for many.
The scarcity of available homes on the market is expected to intensify.
Aside from the financial strain in the coming year, the main challenge for homebuyers will be the limited selection of homes on the market. Even as home prices may ease slightly, finding a desirable home may prove difficult.
The situation feeds into itself: homeowners who need help finding new homes that appeal to them are less inclined to sell their current ones, leading to even fewer options for others.
Projections indicate a 14% drop in the inventory of existing homes for sale in 2024 compared to this year. This does not include new constructions.
Many homeowners are reluctant to sell due to the current high mortgage rates. Many homeowners enjoy rates below 4%, and over 90% benefit from rates under 6%, making it financially unappealing to move and face higher rates on a new mortgage.
Typically, those who decide to sell and buy anew are compelled by life changes such as family expansion, divorce, job relocation, or retirement.
These are moves born out of necessity.
On the brighter side, homebuilders are expected to continue their work. The predicted decline in housing inventory doesn’t account for new constructions. Homebuilders are projected to slightly increase their output by 0.4% from the previous year, producing just shy of a million new homes. They’re also expected to maintain incentives like mortgage rate buy-downs to attract buyers.
Buyers will encounter an increase in newly constructed homes when they look at the market.
Home sales are projected to continue at a subdued level.
Due to the combination of sparse property listings by homeowners and the financial hurdles facing buyers, home sales are expected to remain subdued.
Realtor.com forecasts a marginal increase of just 0.1% in existing home sales, totaling approximately 4.07 million homes in 2024.
Although this figure may seem notable against the backdrop of a housing shortage with high prices and mortgage rates, it represents a significant decline from the annual average of 5.28 million home sales recorded from 2013 to 2019. Moreover, it marks a steep fall from the 6.12 million sales in 2021, a year still affected by the pandemic and characterized by historically low mortgage rates.
Rental prices are anticipated to experience a slight decrease.
With the housing market’s high costs preventing numerous potential buyers from purchasing, a considerable number have had to continue renting, exposing them to landlords who have consistently increased rental prices in recent years.
Nonetheless, after witnessing substantial rent increases for several years, the era of significant hikes is projected to cease. It forecasts a modest rent price reduction of 0.2% for 2024.
Additionally, renters can expect a more extensive inventory of available rental properties, likely contributing to restraining rental prices. This option increase is due to builders having accelerated apartment construction over the past year.
