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2024 Housing Market Forecast: A Turnaround in Housing Affordability

The year 2024 promises a mix of continuity and change in the housing market and economy. While economic growth is expected to be modest, there will be a slight increase in unemployment and easing inflation....

The year 2024 promises a mix of continuity and change in the housing market and economy. While economic growth is expected to be modest, there will be a slight increase in unemployment and easing inflation. However, the most significant change will be the slow retreat of long-term interest rates, including mortgage rates. This shift from climbing to falling mortgage rates will improve housing affordability but may dampen the sense of urgency among home shoppers. Despite this, home sales are expected to remain relatively stable at low levels in 2024. The decreasing demand and ample rental options will contribute to a slight adjustment in home prices, although the number of available homes for sale is anticipated to continue dwindling.

Realtor.com® 2024 Forecast for Key Housing Indicators

According to the Realtor.com® forecast for 2024, here are some key housing indicators:

  • Mortgage Rates: The average mortgage rates are projected to be 6.8% (avg) and 6.5% (year-end), compared to 6.9% (avg) and 7.4% (year-end) in 2023.
  • Existing Home Median Price Appreciation (Y/Y): A decline of -1.7% is expected, following a modest increase of +0.2% in 2023.
  • Existing Home Sales (Y/Y | Annual Total): A marginal increase of +0.1% is predicted, with an estimated total of 4.07 million, compared to a significant decrease of -19.0% in 2023.
  • Existing Home For-Sale Inventory (Y/Y): A further decline of -14.0% is anticipated, compared to a decrease of -5.7% in 2023.
  • Single-Family Home Housing Starts (Y/Y | Annual): A slight increase of +0.4% is projected, with an estimated total of 0.9 million, compared to a decrease of -10.3% in 2023.
  • Homeownership Rate: The homeownership rate is expected to remain relatively stable at 65.8%.
  • Rent Growth: A minor decline of -0.2% is predicted, following a modest increase of +0.2% in 2023.

Home Prices Dip, Improving Affordability

Home prices experienced double-digit annual growth for a significant period from the second half of 2020 through 2022. However, as mortgage rates increased, home price growth stagnated and even declined on an annual basis in early 2023. The dip in mortgage rates stimulated buyer demand and led to a resurgence in home prices. While the prices did not reach a new monthly peak, the overall median home price for 2023 is expected to slightly exceed the previous year's median.

Despite the temporary dip in prices, buying a home remained expensive. Since May 2022, purchasing a typical for-sale home listing at the prevailing rate for a 30-year fixed-rate mortgage with a 20% down payment required a significant portion of the typical household paycheck. In October 2023, it even accounted for 39% of the typical household income. However, the return to pricing in line with financing costs is expected to begin in 2024. The combination of slightly lower home prices, lower mortgage rates, and income growth will contribute to an improved mortgage payment share relative to median income. The average mortgage payment share is projected to be 34.9% in 2024, with a further decrease to under 30% by the year's end.

Home Sales Barely Budge Above Record Low

Existing home sales experienced a boom during the pandemic but faced a decline in the latter half of 2022 due to soaring mortgage rates. The temporary relief in mortgage rates in early 2023 reinvigorated home sales. However, the renewed climb of mortgage rates exerted significant pressure on home sales, especially since many households had already made purchases in the past few years. Homeowners, in general, were content with their current homes and cited concerns about losing their existing low-rate mortgages as a primary reason for not selling.

With similar conditions expected in 2024, the housing market is likely to continue its sluggishness. Home sales are projected to remain essentially unchanged at slightly over 4 million. Mortgage rates are expected to ease throughout the year but will still pose high costs for existing homeowners considering a move. Only job changes, family situation changes, or downsizing to a more affordable market are likely to drive home sales in 2024.

Shoppers Find Even Fewer Existing Homes For Sale

The housing inventory has been on a downward trajectory for some time, exacerbating the limited availability of homes. The number of existing homes on the market continues to dwindle, and with low home sales activity, the number of unsold homes is expected to remain low. The lock-in effect, where existing homeowners enjoy lower mortgage rates than the market rates, will continue to be a factor. This effect is particularly significant, with the majority of outstanding mortgages having rates below 6%.

Rental Supply Outpaces Demand to Drive Mild Further Decline in Rents

After a year of double-digit rent growth between mid-2021 and mid-2022, the rental market has finally cooled down. The tug of war between supply and demand in 2024 is likely to result in a mild decline of -0.2% in the median asking rent. New multi-family supply will continue to shape the rental market, with the construction pipeline fueling supply growth.

Renting is expected to remain a more budget-friendly option than buying in most markets, even with the anticipated decline in home prices and mortgage rates. Renters, especially young adults who lack the benefit of high home equity, will continue to face challenges in the housing market. Areas favored by young adults, including affordable areas and tech-oriented job markets, are expected to be the rental markets to watch in 2024.

Key Wildcards

There are several key wildcards that could influence the forecast for 2024:

  1. Mortgage Rates: If inflation sees a surprise resurgence, it may impact interest rates and potentially lower home sales instead of stabilizing them.
  2. Geopolitics: The risk of geopolitical instability on trade and energy costs, such as Russia's ongoing war in Ukraine and conflicts in the Middle East, could impact the economic outlook.
  3. Domestic Politics: The 2024 elections could lead to changes in the housing market as Americans make decisions based on political preferences.

Housing Perspectives

What will the market be like for homebuyers, especially first-time homebuyers?

First-time homebuyers will continue to face challenges in the housing market in 2024. However, there are some positive signs. The share of income required to purchase a median-priced home is expected to decline as mortgage rates ease, home prices soften, and incomes grow. While the monthly cost of financing a home may still be high, it will be a significant step in the right direction.

How can homebuyers prepare?

Potential homebuyers can prepare for the housing market by getting financially ready. They can use home affordability calculators to determine their price range and explore different loan options such as FHA or VA loans. Down payment assistance programs can also make it easier to gather the necessary funds for a down payment.

What will the market be like for home sellers?

Home sellers are likely to face more competition from builders in 2024. Builders are focusing on lower-priced homes and are willing to make price adjustments when needed. Sellers should carefully consider the landscape for new construction housing in their local markets and its implications for pricing and marketing their homes.

What will the market be like for renters?

Renting is expected to remain a more cost-effective option than buying in the short term, despite the anticipated decline in home prices and mortgage rates. However, renters should consider the duration of their residence and evaluate the costs and benefits of renting versus buying over time. Realtor.com's Rent vs. Buy Calculator can provide insights tailored to specific situations.

Local Market Predictions

Remember that all real estate is local, and while national trends are informative, understanding your local market is crucial. Here are some predictions for selected metro areas:

  • Akron, OH: 3.2% sales growth and 3.2% price growth
  • Albany-Schenectady-Troy, NY: 1.1% sales growth and 3.7% price growth
  • Albuquerque, NM: -4.1% sales growth and 5.2% price growth
  • Allentown-Bethlehem et al, PA-NJ: 2.2% sales growth and 5.0% price growth
  • Atlanta-Sandy Springs et al, GA: -15.8% sales growth and 0.4% price growth

Please note that these predictions are specific to each metro area and are subject to change based on local market conditions.

In conclusion, the 2024 housing market is expected to bring some relief in terms of housing affordability with falling mortgage rates. However, home sales and inventory levels are anticipated to remain relatively stable, with limited supply and high costs for existing homeowners considering a move. Renting is expected to continue being a more cost-effective option, particularly for young adults. As always, it is essential for buyers, sellers, and renters to stay informed about the local market conditions and make decisions based on their specific circumstances.