The real estate housing market has been a focal point of discussion, especially as we transition from the unpredictable waves of 2023 to the looming horizon of 2024. Despite a dramatic increase in interest rates, the past year has seen a dramatic escalation in home prices in most markets, spurred by a significant demand-supply imbalance.

    In this blog, I’ll dive deeper into the various housing market predictions for 2024, aiming to provide a clearer picture for those mulling over the crucial question, “Should I buy a house now or wait until 2024?”

    A Lookback at the 2023 Housing Market Landscape

    The narrative of the real estate housing market in 2023 has been significantly influenced by a soaring demand amidst a limited supply. This imbalance has driven home prices upward in most markets, especially in burgeoning urban areas where housing inventory has struggled to keep pace with the influx of new residents.

    Continued strong demand, despite higher rates, coupled with limited inventory has fostered a seller’s market that is a boon for sellers for a bane for buyers.

    Supply and Demand Dynamics

    The fundamental principle of supply and demand has been the linchpin in the real estate housing market narrative of 2023.  Since the 2008 meltdown, data indicates that household formations and population growth have both exceeded the pace of homebuilding by a significant margin.  This is the exact opposite of what took place prior to 2008, when the number of homes constructed vastly exceeded the number of new household formations.  Today’s home vs. household discrepancy has been a major contributor to today’s supply and demand imbalance – helping to push prices skyward.

    This recent blog – Population and Households Grew Far Faster Than Home Supply – provides more detail for interested readers.

    The Airbnb Effect

    There is much ado about an Airbnb crash potentially crashing the housing market as well.  This is because there are approximately 1 to 1.5 million Airbnb listings, and the bloom has fallen off the Airbnb rose due to a drop in demand and far more regulatory pressure that is preventing Airbnb owners from even listing their properties in many markets.   As a result, many Airbnb owners are expected to sell their homes en masse – potentially increasing the supply and bringing down prices.  But, an adverse impact on housing prices is unlikely for the following reasons.

    First, there are 82 million single-family homes in the United States, and there are almost 100 million housing units in the United States, if condos, duplexes, triplexes, and fourplexes are included.  So, relative to these numbers, the total number of Airbnb units is very small.

    In addition, not all Airbnb units will end up on the market, and many Airbnb listings are simply extra rooms, in-law units, trailers, converted garages, etc. So, the overall impact of an Airbnb bust on the housing market will not be significant, and certainly not as serious as doomsayers might have us believe.  This recent blog explores the issue in more detail if readers are interested.

    Interest Rates and Their Impact

    There are two opposing effects of higher interest rates, one that could potentially bring down prices and one that is definitely keeping prices propped up.

    Soaring interest rates have severely impacted housing affordability, pushing many potential buyers out of the market entirely and reducing demand.  Unlike the previous scenarios where lower interest rates made borrowing cheaper and encouraged more people to enter the homebuying sphere, the high interest rates of 2023 have acted as a deterrent.  Research has shown that as many as 5 million potential buyers leave the market with every 1% increase in interest rates. This sharp reduction in the number of buyers reduces demand and the competition for homes, and thus puts downward pressure on home prices.

    The impact of high rates on buyers, however, is more than offset by the impact on sellers due to what are called “mortgage rate lockdowns.”  This is a phenomenon where potential sellers do not sell their homes because they have very low interest rates on their mortgages that they do not want to lose by selling their homes.  So they instead remain in their homes to avoid having to sell and buy a new home with today’s much higher rates.  This “lockdown” situation is severely dampening inventory levels and it is a major reason why home values are holding steady and/or increasing in many markets.

    The Federal Reserve’s stance on interest rates has been a crucial determinant of market behavior, and as we transition into 2024, its policies will continue to have a profound impact on the real estate housing market trajectory. The decisions on interest rates in the coming year will be keenly watched by all market stakeholders, as they will significantly influence buyer affordability, market demand, market supply, and overall housing market momentum.

    The ripple effects of high interest rates extend beyond just the buyers to the broader economy as well.  Reduced home buying activity can lead to lower revenues for real estate agencies; reduced commissions for real estate agents; reduced commissions and revenues for mortgage lenders; less revenues for related businesses like stagers; contractors and moving companies; and lower transfer tax revenues for local governments.

    The broader economic implications underscore the significant role interest rates play in the real estate housing market, reiterating the need for potential buyers and investors to keep a close eye on the Federal Reserve’s interest rate policies as 2024 approaches.

    View mortgage rates for May 26, 2024

    Housing Market Predictions for 2024

    Drawing from various analyses and market trends, here are some refined predictions for the real estate housing market in 2024:

    Price Stabilization

    The diverging predictions from experts highlight a complex scenario for 2024. While Morgan Stanley anticipates a 2% drop in home prices, the National Association of Realtors’ Chief Economist, Lawrence Yun, projects a 3% to 4% increase in home prices. On the other hand, the California median home price is forecasted to rise by 6.2% in 2024, hinting at localized market behavior.

    The contrasting forecasts underscore the inherent uncertainty and the multi-faceted nature of the real estate housing market, where regional dynamics play a crucial role in price movements. Additionally, other factors such as interest rates, job growth, and government housing policies could also significantly influence price stabilization in 2024. The varying predictions suggest that while broad market trends provide a general outlook, individual circumstances, and localized market conditions will heavily impact the actual home price trajectories experienced by buyers and sellers.

    Increased Inventory

    The construction sector is signaling a boost in housing supply. More construction projects are underway, with multifamily housing supply projected to rise to nearly 7% by the end of the year, showing a steady increase into 2024. Additionally, new single-family residential starts are forecasted to hit 1,020,000 by Q2 2024, indicating a potential ease in the supply-demand imbalance.

    Investor Activity

    Investor activity is a substantial driver of the real estate housing market, and cities with favorable economic conditions often attract a high level of investment. Cities like Raleigh and Charlotte have been garnering attention due to their relatively low cost of living and robust job markets, making them attractive grounds for investors. These cities are projected to continue to attract investors in 2024, bolstering the local real estate markets.

    Investment volume in the real estate sector is forecasted to rise by 15% in 2024, recovering from a dip experienced in 2023. This resurgence is indicative of the investors’ regained confidence in the market and the potential profitable returns on investment. The projected increase in investment activity is expected to contribute positively to the housing market dynamics, potentially leading to increased housing supply and stabilized prices.

    How Will Interest Rates Affect The Housing Market in 2024?

    Interest rates are a cornerstone of the real estate housing market, influencing both buyer behavior and housing prices. Many economists, however, expect a recession to set in sometime in 2024 and that will likely result in much lower interest rates, despite the Fed’s proclamation that they will remain “higher for longer.” If rates fall enough, the “mortgage rate lockdown” effect will be mitigated, and that in turn could bring much inventory to the market.

    Buyer Affordability

    Interest rates directly impact the cost of borrowing. Lower rates decrease the cost of mortgage loans, making home buying more affordable. Conversely, higher rates increase the cost of borrowing, which could deter some potential buyers, especially those on a tight budget or first-time homebuyers. And, as mentioned above, even a small drop in interest rates brings millions of buyers back into the market – putting upward pressure on prices. This is why home prices tended to hold up during almost all recessions, with the exception of 2008 when there was a massive glut of inventory.

    Mortgage Rates vs. Interest Rates

    All “interest rates” are not the same. There is the short-term “Fed Funds Rate,” set by the Federal Reserve; there is the 10 Year Treasury Yield, the benchmark interest rate followed closely by investors worldwide; and there are mortgage rates. They do not always move in lockstep, but they do influence each other and generally move in the same direction over the long term.  So, while the Fed does set the Fed Funds Rate and while it does influence mortgage rates, mortgage rates can sometimes move independently from the Fed Funds Rate if there is significant economic or geopolitical news. A war or a stock market crash, for example, can push mortgage rates down significantly even if the Fed Funds Rate does not change.

    In 2024, most economists expect mortgage rates to come down for various reasons, and that will likely result in more demand and upward pressure on home prices.

    Home Prices

    The interaction between buyer demand and home prices is quite direct. When more buyers enter the market, encouraged by lower interest rates, competition for available homes increases, often driving up prices. On the flip side, higher interest rates can lead to reduced buyer competition, which may put a downward pressure on home prices.  Fortunately, rates are expected to fall, so it is more likely that we will see increased buyer demand.

    Investor Activity

    Real estate investors are also influenced by interest rates. Lower rates can encourage investors to buy more properties due to lower financing costs, lower payments, and improved cash flow.  In contrast, higher rates could reduce investment activity, as financing and carrying costs increase.

    Market Momentum

    The overall market momentum is often swayed by interest rates. A market with lower interest rates tends to have a positive momentum with increased buyer and investor activity, while a market with higher interest rates may continue to see the current slowdown exacerbated.

    Unemployment

    Unemployment is another huge variable, as it too can significantly impact interest rates and home values.  It impacts interest rates because it is a major factor behind the Fed’s decision to increase or decrease rates.  It impacts home values because if unemployment rates get high enough, it could result in more forced sales that could in turn increase inventory to the point where there is downward pressure on values.  This is considered unlikely, however.

    Consumer Spending and Economic Growth

    Interest rates also have a broader impact on consumer spending and economic growth, which in turn, influence the real estate housing market. Lower rates can stimulate spending and economic growth, creating a favorable environment for the housing market, while higher rates can have the opposite effect.

    In summary, the trajectory of interest rates in 2024 will play a significant role in shaping the housing market dynamics. Interest rates affect buyer affordability, mortgage rates, home prices, investor activity, market momentum, and the broader economy, all of which intertwine to form the real estate housing market landscape for 2024.

    View mortgage rates for May 26, 2024

    Frequently Asked Questions

    Should I buy a house now or wait until 2024?

    The decision is nuanced and depends on various factors including your financial situation, the specific market conditions, and your long-term goals. We advise talking with one of our mortgage experts at JVM Lending for personalized guidance based on your financial and homebuying goals.  Buyers might also consider buying now while there is much less competition in the market and then hope to refinance into a lower rate when rates fall in the future.

    What should I consider before entering the real estate market?

    Evaluate your financial readiness, understand the prevailing market trends, and seek advice from a mortgage expert. Being informed upfront will help you make a sound decision.

    Conclusion

    The real estate housing market is poised at a crucial juncture as we approach 2024. While uncertainties abound, being informed and staying updated on market trends can significantly aid in making sound investment decisions. Whether you’re a first-time homebuyer or a seasoned investor, understanding the housing market predictions can provide a clearer picture as you plan your next move.

    Should you have any questions about the housing market or buying a home, don’t hesitate to reach out to a mortgage expert at JVM Lending. Our team of seasoned professionals is here to provide the guidance and insights you need to make informed decisions. Whether you’re a first-time homebuyer or a seasoned investor, we’re here to assist you every step of the way.

    Take the next step towards finding your best mortgage.

    Get your personalized instant rate quote:

      Get your instant rate quote.
      • No commitment
      • No impact on your credit score
      • No documents required
      You are less than 60 seconds away from your quote.

      Resume from where you left off. No obligations.