The biggest challenge for home buyers in the new year will be affordability, reports the Bright MLS 2024 Housing Forecast, [1] released just before the holidays.
The good news is that slowing home price growth, falling interest rates (from 22-year highs), and more properties coming to market as life events cause people to sell combine to create a rise in home sales and more options for buyers. That said, market activity is still projected to be below normal levels, with higher mortgage rates and a greater number of negotiations per sale.
The key takeaways from the Bright MLS Forecast [1] include:
- Mortgage rates: Expect them to fall below 7% in Q1, meaning a slow spring as buyers watch expectantly. Rates should hover between 6-6.5% before settling at 6.2% by December.
- Existing home sales: The new year should tally 4.6 million sales. That’s up 12.1% from last year’s record low, but still below a typical year.
- Uptick in sellers: Homeowners nestled in their sub-4% mortgage rates will be prompted by life events (changing family and/or financial circumstances) to list their homes. This should lead to a 7.6% increase in inventory by year-end, bringing 2024’s inventory just 8% shy of 2019’s pre-pandemic numbers.
- More inventory and more buyers: This one-two punch should keep home prices stable. Bright estimates the median U.S. home price rising just 1.5% to $394,200.
- Lower home prices in some markets: California and Florida will especially benefit from growing affordability challenges and an increase of new homes.
The affordability factor will hit first time home buyers especially hard. Affordability worsened significantly in 2023, with both mortgage rates and home prices rising. Bright suggests that sellers can help cushion this impact by offering financial help, such as closing cost assistance, to get new owners into the market.
More good news: Indianapolis, Buffalo, and New Orleans lead the list of ten metro areas in which home prices will increase by 5% or more. Unfortunately, Miami, San Diego, and Las Vegas lead the list of metro areas where home prices will drop by 5% or more.
With all that in mind, Bright cautions there are still some wild cards coming. A short, mild recession is expected, and while it shouldn’t impact the housing market, ongoing global conflicts could exacerbate the US recession risk. Plus, government standoffs and domestic political discord may add to consumer anxiety.