The Realtor.com 2024 Housing Forecast [1] revealed not only market predictions for 2024, but the likelihood of lower mortgage rates, easing prices, and sales projections for the top 100 U.S. metros.
Experts predict moderation of the aforementioned factors will help spark the beginning of a potential "affordability turnaround" in the coming year. However, the limited supply of existing homes will still be tight and renting will remain competitive in most markets.
According to the report, in 2024, Realtor.com forecasts that homebuyers and sellers can expect:
- Average mortgage rates of 6.8%, with rates edging down over the year to reach 6.5% by the end of the year.
- Home prices to ease slightly and drop by 1.7% after generally increasing since 2012.
- Rents to drop by 0.2%, making renting a more budget-friendly option than buying in most markets.
- A -14% year-over-year drop in inventory, as existing homeowners with low mortgage rates stay put.
- Home sales to hold steady, rising 0.1% year-over-year (YoY) to 4.07 million.
"Our 2024 housing forecast reveals the green shoots we've been waiting to see in the housing market and should give buyers some optimism after a grueling few years. Although mortgage rates are expected to ease throughout the course of the year, the continuation of high costs will mean that existing homeowners will continue to have a high threshold for deciding to move, but we will start to see some interest," said Danielle Hale, Chief Economist for Realtor.com. "Moves of necessity—for job changes, family situation changes, and downsizing to a more affordable market—are likely to drive home sales in 2024. Home buyers will continue to seek out markets where they feel like they get the most out of their dollar as they look for homes that better meet their needs."
Key Housing Trends for 2023:
- Affordability will officially turn around in 2024. In the coming year, the typical monthly purchase cost for the median-priced home listing is expected to be slightly less than $2,200/month, or about 35% of the typical household income. That's an improvement from 2023, when purchase costs ate up nearly 37% of income and the typical for-sale home cost $2,240. This tick-up in affordability will give a foothold to some homebuyers trying to break into the market.
- Even more sellers hang back, but they could get motivated if rates drop faster than forecasted. Despite the fact that builders have been catching up, the lack of excess capacity in housing has been obvious over the last few years. With home sales activity forecast to continue at a relatively low pace, the number of unsold homes on the market is also expected to remain low. But if rates drop faster than expected—which is possible given the roughly half-point decline seen in November 2023—this could lessen rate lock sooner and bring more homes to the market than forecasted.
- Shiny new rental construction will hit the market. A once-hot rental market has slowed down, with the rental vacancy rate rising slightly, up to 6.6% in Q3 of 2023, about where it was right before the pandemic. In 2024, an increase in new rentals will help push vacancy higher, closer to the 7.2% average seen from 2013–2019. While the surge in new rental options gives renters more to choose from, the sheer number of renters will minimize the potential price impact. The median asking rent in 2024 is expected to drop only slightly below its 2023 level of -0.2%.
- Sellers should be ready to compete with new construction. Home sales will likely be driven by moves of necessity in 2024. And even with the lower inventory of existing homes, sellers will be competing with new housing. Single-family home housing starts will increase by an estimated 0.4% in 2024. Sellers will need to look at the new construction market in their area to make sure pricing and marketing are competitive.
- Geopolitics and inflation are among 2024's wildcards. Even as markets adjusted to Russia's war in Ukraine, conflict in the Middle East heated up to historic levels in Q4 of 2023. Both wars have the potential to affect the global economy in ways that can't be fully anticipated. On the domestic front, the 2024 election season, with its attendant uncertainty, will be in full swing. While inflation is expected to continue to subside, anything that reverses that trend could raise long-term interest rates and, in turn, nudge mortgage rates higher than expected. That might discourage potential sellers from making a move and could keep potential buyers on the sidelines, putting a damper on home sales.
"Buyers and sellers who are planning to get into the market this year should be prepared," said Hale.
Home Sales Barely Budge Above 2023’s "Likely" Record Low
After soaring during the pandemic, existing home sales were weighed down in the latter half of 2022 as mortgage rates took off, climbing from just over 3% at the start of the year to a peak of more than 7% in Q4.
The reprieve in mortgage rates in early 2023, when they dipped to around 6%, brought some life to home sales, but the renewed climb of mortgage rates has again exerted significant pressure on home sales that is exacerbated by the fact that a greater than usual number of households bought homes over the past few years, and despite stories of pandemic purchase regret, for the most part, these homeowners continue to be happy in their homes.
House Hunters Are Finding Even Fewer Existing Homes For Sale
Even before the pandemic, housing inventory was on a long, slow downward trajectory. Insufficient building meant that the supply of houses did not keep up with household formation and left little slack in the housing market. Both homeowner and rental vacancies remain below historic averages. In contrast with the sluggish existing home market, builders have been catching up, with construction remaining near pre-pandemic highs for single-family and hitting record levels for multi-family.
Although mortgage rates are expected to begin to ease, they are expected to exceed 6.5% for the calendar year. This means that the lock-in effect, in which the gap between market mortgage rates and the mortgage rates existing homeowners enjoy on their outstanding mortgage, will remain a factor. Roughly two-thirds of outstanding mortgages have a rate under 4% and more than 90% have a rate less than 6%.
What will the market be like for homebuyers, especially first-time homebuyers?
First-time homebuyers will continue to face a challenging housing market in 2024, but there are some green shoots. The record-high share of income required to purchase the median priced home is expected to begin to decline as mortgage rates ease, home prices soften, and incomes grow. In 2023 we expect that for the year as a whole, the monthly cost of financing the typical for-sale home will average more than $2,240, a nearly 20% increase over the mortgage payment in 2022, and roughly double the typical payment for buyers in 2020. This amounted to a whopping nearly 37% of the typical household income.
In 2024 as modest price declines take hold and mortgage rates dip, the typical purchase cost is expected to slip just under $2,200 which would amount to nearly 35% of income. While far higher than historically average, this is a significant first step in a buyer-friendly direction.
To read the full report, including more data, charts, and methodology, click here [1].