The housing market continues to be a hot topic of discussion. With soaring prices and tight inventory, prospective buyers are left wondering: when will home prices become affordable? If you’re curious like them, read on to learn what the experts predict for the 2024 housing market.
Is Today’s Housing Market Sustainable?
With home prices at historic highs and inventory still very tight, many prospective sellers and hopeful buyers are feeling nervous about today’s housing market. The median sale price for an existing home in the U.S. was $382,600 as of December 2023, marking the sixth straight month of year-over-year price increases. This, coupled with rising mortgage rates, has significantly shaped housing affordability.
However, there’s a glimmer of hope. The average 30-year mortgage rate as of the end of January 2024 was 6.84 percent — still higher than most homeowners’ locked-in rates, but a welcome reprieve from the recent 20-year highs. This could potentially influence housing affordability in the coming year.
The Impact of Mortgage Rates
Mortgage rates have a significant impact on the housing market. Rates roughly doubled in 2022, thanks in part to the Federal Reserve’s war on inflation, and have stayed relatively high since. While the Fed does not directly set mortgage rates, mortgage lenders take cues from them, and mortgage rates climbed in tandem with the Fed’s long string of rate hikes.
However, the Fed held rates steady again in its first meeting of 2024, and even signaled that rate cuts, rather than hikes, could be coming in the near future. But many predict that homebuyers will still be feeling the squeeze throughout the year.
Home Sales and Inventory Levels
While home prices more than held firm in 2023, the volume of home sales softened considerably. Existing-home sales declined for five months in a row before rising slightly in November 2023. However, they fell again in December to an annual pace of 3.78 million, according to NAR data, which represents a 6.2 percent drop year-over-year. However, these trends may pivot in 2024 if mortgage rates continue to dip.
Speaking of much-needed inventory, housing supply remained very low throughout 2023. The overall number of existing homes on the market for sale as of December sat at 1 million units, up slightly from the year before but down 11.5 percent from November’s figure. That represents only a 3.2-month supply, far short of the 5 to 6 months usually needed for a balanced market.
Home Prices Predictions
Housing prices have been on fire lately, culminating in historic highs — December’s median of $382,600 was only about $30K short of the highest monthly home price NAR has ever recorded ($413,800, set in June 2022). So will home prices drop in 2024? Probably not, according to experts. Home price appreciation can only moderate from drastically improved supply. Another 30 percent rise in home construction can easily be absorbed in the marketplace.
However, prices are intricately connected with housing inventory. As more time passes, more homeowners may be ‘forced’ to sell due to life events, so inventory may rise from the current anemic levels, but it’s unlikely to increase much. That means that prices are unlikely to fall on a year-over-year basis, unless demand falters.
The Seller’s Market
In today’s market, tight inventory continues to give sellers the upper hand. There are more buyers than there are homes available, so each home that comes on the market becomes more of a hot commodity than it might if there were more options to choose from. Without a significant uptick in inventory, the seller’s market seems unlikely to change this year.
Given expectations about interest rates and supply, demand will probably exceed supply similar to current conditions. Supply is likely to remain below what we would deem a balanced market.
Tackling the 2024 Housing Market
The combination of high mortgage rates, steep home prices and low inventory levels are lining up to make the 2024 housing market a challenging one for both buyers and sellers. But rates have been cooling a bit — if that continues throughout the year, as some experts predict, then market activity should heat up in response.
The complexities of the current conditions mean that, now more than ever, it’s smart to lean on the guidance of an experienced local real estate agent. If you want to enter the market in 2024, whether as a buyer or a seller, let a pro lead the way for you.