The housing market has witnessed significant fluctuations in recent years, characterized by soaring prices and a sharp increase in mortgage rates. As 2024 unfolds, prospective homebuyers and sellers are keenly watching for signs of change, influenced largely by economic policies and market dynamics. This article delves into the expected trends and shifts in the housing market for 2024, drawing on expert analysis and key statistics to provide a comprehensive outlook.
Mortgage Rates and Federal Reserve Actions
Following a dramatic increase in mortgage rates in 2022 due to the Federal Reserve’s measures against inflation, 2024 starts with high but potentially declining rates. The Federal Reserve’s decision to keep rates steady in early meetings suggests a shift towards reducing rates, contingent on inflation trends. According to Greg McBride, a chief financial analyst at Bankrate, although mortgage rates are expected to decrease gradually throughout the year, they may not fall below 6 percent until late 2024. A sharp economic slowdown could significantly lower these rates, albeit with undesirable economic repercussions.
The relationship between mortgage rates and the Federal Reserve’s policies continues to be a critical factor for the housing market. As lenders often align their strategies with the Fed’s cues, any hint of rate cuts could stimulate lending activities. However, McBride warns that the descent in rates might be slow and uneven, influenced by broader economic conditions rather than direct regulatory changes alone. Buyers and investors, therefore, must remain vigilant and adaptive to shifts in monetary policy and their implications on mortgage expenses.
Current Housing Market Statistics
According to data from the National Association of Realtors (NAR), the median home-sale price reached $384,500 at the start of 2024, marking a 5.7 percent increase from the previous year. This growth continues the robust price surges witnessed in recent years. Furthermore, the housing inventory as of February stands at a 2.9-month supply, indicating a persistent seller’s market. These figures suggest that while the demand for homes remains strong, the supply side struggles to keep up, pushing prices upward.
In addition to rising home prices, the average rate on a 30-year mortgage, as reported by Bankrate’s national survey of large lenders, was 7.05 percent as of early April 2024. This rate, coupled with a slightly higher inflation rate of 3.2 percent compared to the Federal Reserve’s goal of 2 percent, continues to challenge the affordability of average homebuyers. The upward trajectory in home prices and the tight supply of housing stock are pivotal factors likely to define the market’s direction as the year progresses.
Changes in Real Estate Commissions
A significant shift is on the horizon for the U.S. real estate market following the settlement of a major lawsuit affecting how real estate commissions are structured. Starting from July 2024, buyers will need to cover their agent’s commission, potentially altering the dynamics of home pricing and buying processes. This change is expected to give buyers more influence over how much they pay their agents, which could lead to a decrease in overall transaction costs or a shift towards more buyer-driven negotiations.
The long-term impacts of these changes are still uncertain, with experts like Jeff Ostrowski from Bankrate suggesting that it might take years to fully understand the effects. Changes could include reduced commission rates or increased buyers opting to handle transactions without an agent. Either scenario presents a transformative shift in how real estate transactions have traditionally been managed, possibly enhancing buyer empowerment and introducing new transaction process complexities.
Home Sales Trends and Predictions
While home prices have remained robust through 2023, the volume of home sales has softened, a trend that has continued into 2024. According to the latest reports from NAR, existing home sales in February were up 9.5 percent over January but still marked a 3.3 percent drop year-over-year. These numbers reflect a cautious but engaged market where buyers are carefully timing their purchases based on economic cues and mortgage rate movements.
Experts like Lawrence Yun of NAR and Chen Zhao of Redfin predict a moderate increase in home sales for the remainder of 2024, driven by steady population and job growth. However, with mortgage rates expected to remain above 6 percent, the increase in sales is likely to be gradual rather than dramatic. Selma Hepp, chief economist at CoreLogic, suggests that any significant reduction in mortgage rates could catalyze the market, encouraging more transactions and potentially increasing available inventory as more sellers decide to list their properties.
Forecasting Housing Inventory Levels
The current housing inventory levels are alarmingly low, with only a 2.9-month supply available, far below the 5 to 6 months needed for a balanced market. This shortage has been a persistent issue, constraining the market and inflating home prices. NAR’s chief economist, Lawrence Yun, predicts a slight improvement in inventory levels due to increased home building and homeowners finally deciding to list their properties after delaying in previous years. This anticipated increase stems from growth in new constructions and sellers adjusting to new life circumstances, such as family composition or employment changes.
Despite these optimistic projections, the increase in inventory might not be sufficient to significantly alter the market dynamics. The underlying demand continues to outpace supply, and any new listings are quickly absorbed. This situation underscores the ongoing challenges in achieving a balanced housing market. Experts suggest that only a significant surge in construction or a shift in homeowner sentiment toward selling could meaningfully impact inventory levels. The market will likely remain tight, with fierce competition for available homes.
Will Home Prices Go Down?
In the context of high demand and low supply, the likelihood of a substantial decrease in home prices appears slim for 2024. According to Lawrence Yun, home prices are expected to rise modestly, with NAR forecasting a 1.4 percent increase in median home prices to $395,100. This increase might continue into the following year, potentially reaching $405,200, a 2.6 percent rise. Such gradual increases indicate a market where supply constraints push prices upward, albeit slower than in previous years.
Chen Zhao of Redfin notes that home prices and inventory are intricately linked. As long as inventory remains low, sellers have little incentive to lower prices, especially those who secured mortgages at historically low rates and are reluctant to sell and purchase at higher current rates. The dynamic of ‘forced’ sales due to life events may introduce new listings, but it is unlikely enough to tip the balance. Thus, while some regional variations may occur, overall home prices are expected to maintain their upward trajectory or at least remain stable without significant declines.
Market Dynamics: Buyer’s vs. Seller’s Market
The current housing market heavily favors sellers due to the ongoing shortage of available homes. This imbalance ensures that sellers receive multiple offers, sometimes above the asking price, as buyers compete in a constrained market. The dynamics of such a seller’s market are unlikely to change dramatically in 2024 unless there is a significant increase in housing inventory or a sudden drop in buyer demand, which appears unlikely given the current economic forecasts.
Expert opinions, including those from Selma Hepp and Chen Zhao, suggest that the supply of homes will continue to lag behind demand. This scenario is poised to continue the trend of a seller’s market, where demand outstrips supply. Buyers in this market must be cautious, as the competitive environment can lead to bidding wars and higher prices. Prospective buyers should be prepared for a tough negotiation process and possibly consider waiting for more favorable conditions if they do not need a home urgently.
Practical Advice for Prospective Homebuyers and Sellers
Navigating the 2024 housing market requires careful consideration and strategy, especially given the high stakes in buying or selling a home in a volatile market. Prospective buyers should thoroughly assess their financial situation and consider the long-term implications of their purchase, especially in a market where prices are at or near record highs. Evaluating whether the current market conditions align with their personal and financial goals is crucial.
On the other hand, sellers can capitalize on the current market conditions but should remain realistic about their pricing and market expectations. Overpricing in a shifting market can lead to extended listing periods and reduced interest. Both buyers and sellers would benefit from the expertise of seasoned real estate professionals who understand local market trends and can provide guidance tailored to their circumstances. Engaging a reputable agent can help navigate the complexities of transactions and ensure that both parties achieve their desired outcomes effectively.
Final Thoughts
The 2024 housing market presents a complex landscape shaped by high mortgage rates, steep home prices, and low inventory levels. While there are signs that the market could become slightly more buyer-friendly as the year progresses, the overarching conditions still favor sellers. For those looking to enter the market, whether buying or selling, it’s more crucial than ever to stay informed and seek professional advice. As the market continues to evolve, being well-prepared and knowledgeable will be key to successfully navigating the challenges and opportunities that lie ahead.
