Realtor.com anticipates a blend of positive and challenging developments in the US housing market in the upcoming year. Improvement in the affordability of homes is projected, but a delicate equilibrium will be maintained by persistent challenges, offering both good news and areas of concern for prospective buyers.
Realtor.com’s 2024 outlook presents a nuanced perspective, signaling a departure from the frozen conditions experienced in 2023, though not a complete thawing of the market logjam. Chief Economist Danielle Hale acknowledged the incremental progress, stating, “It’s going to stop getting worse.”
Mortgage Rates and Home Prices: A Delicate Dance
Anticipated easing of labor and inflation pressures is expected to prompt a decline in borrowing costs, as the Federal Reserve adopts a dovish stance. Despite the 30-year mortgage rate’s ascent to 8% in October, projections vary, with Realtor.com forecasting an average of 6.8%, offering a reprieve for buyers who faced the urgency of rising rates. Home prices are predicted to dip by 1.7%, alleviating some financial strain on potential homeowners.
With smaller mortgage payments and the prospect of income growth in the coming year, the share of household income required for mortgage payments is anticipated to decrease from this year’s average of 36.7% to 30% by the close of 2024. While not a drastic reduction, it provides a welcome respite from the relentless upward trajectory of housing costs.
Supply Woes: A Lingering Challenge
Despite positive shifts in affordability, the housing market is not without its challenges. Realtor.com predicts a worsening scarcity in supply, attributing the limited decline in mortgage rates as a contributing factor. The “lock-in effect” observed in 2023, where homeowners were reluctant to relinquish low rates, will persist, causing a 14% drop in the inventory of existing homes for sale.
Hope lies in the hands of homebuilders who, in response to surging demand, have escalated construction efforts. Record levels of construction for multi-family properties hint at a potential improvement in inventory, although the extent remains uncertain.
Rental Realities: A Silver Lining
The surge in construction has already begun to influence the rental market positively. Year-over-year rent growth, which peaked in May, is projected to experience a slight decline of 0.2% in 2024. The influx of multi-family homes has elevated vacancy rates, reminiscent of early 2020 levels.
However, the report suggests that even with continued construction through 2024, the impact on prices will be minimal. Millennials and Gen Z, influenced by economic considerations, are likely to prolong their stay in the rental market as they accumulate funds for substantial down payments on their first homes. This sustained demand for rental properties is expected to shape the housing landscape in the years to come.
