2024-01-01 12:35:21
(CNN) – Real estate economists who offered forecasts were wrong about 2023. Few thought home sales would fall…
(CNN) – Real estate economists who offered forecasts were wrong about 2023.
Few thought home sales would fall off a cliff like they did this year, plunging about 17% from their peak in February to their trough in October, according to the National Association of Realtors (NAR).
Most thought home prices would not rise much. However, prices hit record highs this year, rising 7% since the beginning of the year and are now 1% higher than at the 2022 peak, according to Case Shiller.
And virtually no one saw mortgage rates of nearly 8% coming. When the average 30-year fixed-rate mortgage hit 7.79% in late October, according to Freddie Mac, it was the highest level in 23 years.
All of this combined to create the least affordable housing market in a generation. Sales of existing homes fell below 4 million units, reaching levels last seen in 2010. But still, even with fewer buyers, home prices continued to rise because there were not enough homes on the market and the Competition drove up prices.
Will this outlook improve in 2024? What should homebuyers expect next year?
“Earlier this year, I called 2023 the year of disappointment,” said Jonathan Miller, president and CEO of Miller Samuel Real Estate Appraisers and Consultants. “I call this year the ‘year of incremental change.’”
The worst of inflation may be behind us, but the recession is not
The idea, he said, is that 2024 will bring a gradual improvement in home sales, prices and mortgage rates, but there will be few sudden movements.
For home buyers tired and fearful of big swings and sudden market shakeups, it may be a welcome change of pace.
Rates should drop slightly
Mortgage rates have already fallen for nine consecutive weeks and are expected to fall further in 2024, although they are not likely to fall below 6%.
The average rate for a 30-year fixed-rate mortgage has fallen nearly one percentage point this year, hitting 6.61% in the last week of December.
The Federal Reserve’s historic campaign to control inflation by raising interest rates had a powerful impact on the housing market, cutting demand as rates rose and driving potential home buyers out of the market.
“Rising mortgage rates in 2022 and 2023 were perhaps the biggest reason the housing market was stuck in neutral,” said Skylar Olsen, chief economist at Zillow. “The recent drop in mortgage rates has sparked more activity.”
Rates in the 3% range seen in 2020 and 2021 will not return, he said, “at least without another economic crisis that we do not want and should not expect.”
But still, he said, “a slow, steady decline — or even rates holding steady — in 2024 would be a welcome break after a relentless and unpredictable rise over the past two years.”
Realtor.com forecasts that mortgage rates will average around 6.8% through 2024 and end the year closer to 6.5%.
Lawrence Yun, chief economist at NAR, said he expects the 30-year fixed mortgage rate to average lower, at 6.3% in 2024, and that the Federal Reserve will cut rates four times. That could calm inflationary conditions, in response to slower economic activity.
Affordability will improve a little
In October, a typical home buyer would have spent more than 40% of their income paying their mortgage. That’s an all-time high, according to Zillow data, which dates back to the 1990s.
As mortgage rates drop slightly in the new year and more homeowners who have held on to their ultra-low mortgage rates see the gap between their current rate and the current mortgage rate narrow, more homeowners will put their homes on the market.
This will bring more inventory to the market, allowing prices to drop slightly in some markets and stop rising in others.
But anyone holding their breath at the prospect of house prices falling sharply could turn blue.
Zillow’s latest forecast calls for home values to remain stable in 2024, falling just 0.2% by the end of the year. Realtor.com’s forecast calls for home prices to fall a little further, falling 1.7% in 2024 from this year.
The NAR’s latest forecast estimates that the average home price will increase slightly, reaching US$389,500 in 2024, an increase of 0.9% compared to this year.
With mortgage rates now at 6.6%, the average American family can afford to buy a mid-priced home without spending more than 30% of their income, a standard affordability threshold, according to NAR.
At 6.6%, it is estimated that 4.5 million households will once again be able to afford a medium-priced home.
Home sales expected to increase in 2024
As higher inventory and slightly lower mortgage rates create more room for buyers, sales of existing homes are expected to increase, according to the NAR forecast.
Yun forecasts 4.71 million existing homes will be sold, an increase of about 13.5% from this year, which is projected to end with 4.1 million units sold.
Yun also forecasts that a continued increase in new home construction will continue to boost inventory. He predicts there will be 1.48 million housing starts in 2024, including 1.04 million single-family and 440,000 multifamily.
Based on pent-up demand, he said, Austin, Texas, will be the top real estate market to watch.
“Metropolitan markets in southern states will likely outperform others due to faster employment gains, while markets in the Midwest will see gains from being in the most affordable region,” Yun said in a statement.
Other areas where the NAR predicts markets will outperform the national average include the following cities: Dallas and Fort Worth, Texas; Dayton, Ohio; Durham and Chapel Hill, North Carolina; Harrisburg, Pennsylvania; Houston; Nashville, Tennessee; Philadelphia; Portland, Maine; and Washington.
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