2024 Housing and Economic Conditions: Headed in the Right Direction?

Unemployment rates are low, inflation growth is cooling and gross domestic product (GDP) is growing, according to a new study from LendingTree.

While the U.S. economy is doing better, inflation remains elevated, housing is prohibitively expensive for many, debt delinquency rates are rising, personal savings rates are low, and household debt is high.

Even if some negatives aren’t as bad as they might initially appear, they still point to how challenging today’s economy can be to navigate, according to experts. While a total collapse is unlikely and a recession may be avoidable, some Americans will still struggle to make ends meet in the face of relatively high rates and higher-than-ideal inflation.

In 2024, economic results will likely remain mixed, according to the report.

Housing and Economic Predictions for 2024:

The average interest rate on 30-year fixed mortgages is projected to fall near 6.00%, and potentially even lower, by the end of 2024.

But, given how volatile mortgage rates have been since the height of the COVID-19 pandemic, it’s impossible to say with certainty where they’ll be by the end of 2024.

Rates began to trend in the right direction late in 2023. After peaking at 7.79% in the last week of October, the average rate for 30-year fixed mortgages fell to below 7.00% by December and ended the year more than a percentage point lower than their 2023 peak, at 6.61%. If inflation continues to show signs of improvement and the bond market remains less turbulent than during much of 2023, mortgage rates should at the very least stabilize this year, if not show sustained declines.

In light of the Federal Reserve’s December meeting and the high likelihood of a reduction in its benchmark rate this year, mortgage rates might even dip below 6.00% before 2025, though that’s far from guaranteed, experts say. Borrowers shouldn’t expect rates to fall to anywhere near their record 2021 lows or as low as at the start of 2022, when the average rates for 30-year fixed mortgages were 2.65% and 3.22%, respectively.

Year-over-year inflation growth will fall to the mid-2% range but won’t quite hit the Fed’s goal.

Owing to numerous factors, from higher rates to improved global supply chains, inflation growth is trending downward. If this continues, year-over-year growth in the consumer price index (CPI) and the personal consumption expenditures (PCE) price index—the Fed’s preferred inflation measure—could both fall to the mid-2% range by the end of this year.

That’s still above the Fed’s long-run inflation growth target of 2%, but it’s better than it was in 2023—and much better than in 2022, when year-over-year inflation growth was above 8% in many months.
While this doesn’t mean prices on most goods will fall, it’ll mean that households are less likely to deal with sudden and/or significant price spikes.

But continued inflation improvement isn’t guaranteed, and potential events could cause prices to trend upward more quickly. For example, an escalation of conflicts in the Middle East could put upward pressure on gas and oil prices and, in turn, push overall inflation up.

Home prices, mortgage demand, and the number of homes for sale may rise in 2024, but the market is unlikely to drastically heat up.

In 2024, lower mortgage rates may help boost homebuyer demand, though persistent affordability challenges will continue to make buying difficult for many. This means that even if this year’s housing market is more active than 2023’s, it’s unlikely to be anywhere close to as white-hot as it was during the height of the pandemic.

In the same vein, lower rates could make selling more appealing to homeowners who might not be willing to part with their current houses and mortgages until rates are well below 7.00%. However, we shouldn’t expect tons of new sellers to come out of the woodwork. After all, while it should be easier for someone to sell their current home and move from a sub-5.00% mortgage rate to a rate of 6.00% or 6.50% than it would be to move to a rate of nearly 8.00%, it’ll still be far from ideal.

In 2024, additional housing supply should increase as more newly built homes hit the market and more current homeowners become willing to sell. But the increase won’t be enough to cause prices to move dramatically. Some markets may see bigger increases or declines than others in the number of homes for sale, homebuyer demand, and prices.

Experts predict the Fed will cut rates, but not right away.

Even though inflation—in the words of Fed Chair Jerome Powell—remains “too high,” it looks like rate cuts are on the menu this year. Current projections from Fed officials forecast that the federal funds rate will fall to 4.6% in 2024, down from the current effective rate of 5.33%.

This is good news: It suggests that the Fed believes we’re on the right track regarding inflation, likely meaning that borrowing costs for consumers will fall this year.

Of course, the Fed hasn’t cut rates yet, and we should expect its benchmark rate to hold steady for the next few months. We probably won’t see cuts materialize until closer to summer. And once cuts start, expect them to be gradual—three separate 25 basis point decreases are much more likely than a big 75 basis point reduction.
That said, the Fed is designed to pivot quickly in the face of new economic data. Due to that, rate cuts aren’t a foregone conclusion. Should inflation growth start picking up steam again, cuts might not happen. In a similar vein, should the economy take a sudden turn for the worse, cuts may happen sooner and be more plentiful than what’s expected.

The unemployment rate could rise, but it won’t skyrocket.

As businesses and consumers alike continue to grapple with relatively high interest rates this year, the unemployment rate in the U.S. may increase by 30 to 50 basis points.

Higher unemployment can sound scary at first—and it’s always unfortunate when someone loses their job—but given the unemployment rate of 3.7%, a move into the low 4% range isn’t worth panicking about.

Potential Economic Positives in 2024:

• The housing market likely won’t crash this year. Even if lower rates help spur more enthusiasm for homebuying this year, demand will remain relatively low. As a result, the housing market will continue to move sluggishly, especially compared to 2020 and 2021. Fortunately, that doesn’t mean we’re headed for a 2008-style crash. Despite 41% of Americans expecting a crash, the housing market’s strong fundamentals—like the nation’s low mortgage delinquency rate—will likely help us avoid a major downturn.
• Inflation will likely come down. Inflation growth was very high through 2022 and remained elevated in 2023, though it appears to be trending in the right direction. As we move through 2024, continued pressure from relatively high rates and a generally cooling economy should help bring inflation back down to more manageable levels. If all goes well, we could see a return to the Fed’s target annual growth of 2% in 2025.
• Across the board, rates should level off, if not eventually fall. Even if the Fed doesn’t start cutting its benchmark rate until later this year, rates on products not directly tied to the Fed’s actions, like mortgages, could fall. If this happens, housing should become more affordable, even if home prices increase slightly in some areas.
• Wage growth will continue to outpace inflation. Believe it or not, wage growth outpaced inflation growth for most of 2023. This trend appears poised to continue this year as inflation comes down. However, because inflation was so hot in 2022, it’ll take more time before higher wages offset how much higher prices are now compared to where they were before the pandemic.
• The U.S. may avoid a recession. In light of robust GDP growth in the third quarter of 2023 and continued resilience by consumers, the economy doesn’t look as though it’s about to start outright shrinking. Making it through 2024 without a recession will make life easier for most households, as they won’t have to worry as much about losing their job or forgoing an annual pay raise.

Potential Economic Negatives in 2024:

• The housing market will remain prohibitively expensive for many. Even if home prices stay where they are now—or fall slightly—while rates drop, that doesn’t mean housing will become affordable for everyone. Especially for lower-income borrowers, the lower rates we may see this year won’t be enough to offset how pricey real estate has become since the start of the pandemic.
• Home sellers could face challenges. Unlike during the height of the pandemic, selling a house in today’s market can be a chore. Not only is homebuyer demand down, but many would-be sellers are doubtlessly struggling to part with their homes and the sub-5.00% rate their current mortgage is likely to carry. Lower rates in 2024 may help homeowners feel more comfortable listing their homes, but they shouldn’t expect selling to be as easy as it was during the height of the pandemic.
• Savings will stay depressed. Americans managed to build an impressive amount of savings during the height of the pandemic. But these savings have fallen significantly in the face of high inflation rates. Lower rates and cooling inflation in 2024 may give people more opportunities to save, but, generally speaking, most people are unlikely to see their savings rise back to anywhere near where they were in 2020 or 2021.
• Total debt will stay high. U.S. households are sitting on more than $17 trillion worth of household debt. While the lower rates that 2024 may bring should help make some of it more manageable, this debt isn’t going to go away anytime soon. Higher debt could dampen consumer spending this year or otherwise make it harder for Americans to budget their finances. On the bright side, even though debt is high, households aren’t allocating a particularly large amount of their income toward it, and it doesn’t seem as though many households are about to suddenly start defaulting on what they owe.

If there’s one thing the past few years have shown Americans, it's that the U.S. economy is a lot more resilient than many might think—2023 proved this. Even in the face of high rates and significant consumer debt amounts, GDP rose by a strong 4.9% from the second quarter to the third.

This kind of growth doesn’t appear likely to persist. But even if economic growth slows down, the economy can likely avoid outright shrinking this year. If there’s a recession, it’ll probably only be short and mild. This doesn’t mean that everyone will be in great financial shape this year. Though the economy may not officially enter into a recession this year, that doesn’t mean that people won’t struggle or that there won’t be broader economic challenges.

Still, no recession is better than the alternative.

To read the full report, including more data, charts, and methodology, click here.