The housing market in the United States is poised for a nuanced shift in 2024, presenting both encouraging and challenging developments, according to Realtor.com.
Affordability Improvements with Lingering Challenges
Realtor.com anticipates an improvement in housing market affordability in 2024, albeit with persistent challenges. While home prices are expected to decrease, the decline in mortgage rates will be moderate. The lock-in effect from existing rates will continue, providing limited relief to the market’s supply constraints.
Mixed Forecast for 2024
The 2024 housing market outlook provided by Realtor.com offers a mixed forecast, disappointing those hoping for significant improvements after the challenges of 2023. Chief Economist Danielle Hale acknowledged that 2024 would be a step in the right direction without a major breakthrough.
Mortgage Rates and Home Prices
As the Federal Reserve turns dovish in response to easing labor and inflation data, borrowing costs are expected to decrease. Realtor.com predicts a potential drop in the 30-year mortgage rate to an average of 6.8%, down from a peak of over 8% in October. This shift may alleviate pressure on buyers, leading to a 1.7% drop in home prices.
Affordability and Buyer’s Mental Health
The decline in mortgage rates, coupled with expectations for income growth, is anticipated to reduce the share of a household’s income required for a mortgage payment. By the end of 2024, this share is expected to slip to 30%, providing a break for buyers and easing the sense of urgency.
Supply Scarcity Challenges
Despite improvements in affordability, Realtor.com warns that the market’s supply scarcity will persist. The limited decline in mortgage rates contributes to a continuation of the “lock-in effect” from 2023, where homeowners resist giving up their current low rates. As a result, existing home inventory is predicted to plummet by 14%.
Hope from Homebuilders
Relief in the housing market may come from homebuilders who have responded to surging demand. Record levels of construction, especially for multi-family properties, have been observed in 2023. Continued efforts in 2024 could potentially address the challenges posed by limited inventory.
Rental Market Dynamics
The additional construction has already impacted the rental market, with year-over-year rent growth slowing since May. Realtor.com expects a 0.2% decline in rents in 2024. Despite the increase in supply, robust demand for rental properties is expected to persist, particularly among Millennials and Gen Z, delaying their transition to homeownership.
In summary, the housing market outlook for 2024 presents a blend of positive and challenging trends, offering a nuanced landscape for homebuyers and renters alike.
