What will happen to the housing market in 2024?

Rates roughly doubled in 2022, thanks in part to the Federal Reserve’s war on inflation, and have stayed high since. While the Fed does not directly set mortgage rates, mortgage lenders take cues from them, and mortgage rates climbed in tandem with the Fed’s long string of rate hikes.

The Fed’s war on inflation could end soon, but many predict that buyers will still be feeling the squeeze in 2024. “As long as the economy continues to motor along, the new normal of higher rates is here to stay,” says Greg McBride, CFA, chief financial analyst for Bankrate. “A sharp economic slowdown would bring mortgage rates materially lower, but be careful what you wish for. Home price appreciation will be quite modest, at a low- to mid-single digit pace in most areas of the country.”

Will housing sales decline?

While home prices have certainly held firm this year, the volume of home sales has softened considerably. Existing-home sales in September 2023 declined to an annual pace of 3.96 million homes, according to NAR data, which represents a 15.4 percent drop year-over-year. However, these trends may pivot in 2024 if mortgage rates dip.

“Retreating mortgage rates will bring more buyers and sellers to the market and get Americans moving again,” says NAR chief economist Lawrence Yun.

“Housing sales are expected to increase a bit from this year,” says Chen Zhao, who leads the economics team at Redfin. “However,” she qualifies, “we are not expecting sales to increase dramatically, as rates are likely to remain above 6 percent.”

“Lower mortgage rates would help spur home sales activity, which are expected to increase in 2024 compared to 2023,” says Selma Hepp, chief economist at CoreLogic. “Declines in mortgage rates will drive more sellers to trade their existing home and help add much-needed inventory to the market, leading to more transactions.”

Will housing inventory increase?

Speaking of much-needed inventory, housing supply has been very low throughout 2023 thus far. The overall number of existing homes on the market for sale as of September sat at 1.13 million units, an 8.1 percent decline since last year. That figure represents only a 3.4-month supply, far short of the 5 to 6 months usually needed for a balanced market.

“There are simply not enough homes for sale,” Yun said in a statement earlier this year. “The market can easily absorb a doubling of inventory.”

For the inventory levels to improve significantly, there would need to be either a surge of homeowners listing their existing properties or a huge amount of new-construction homes hitting the market. While both seem relatively unlikely, Yun does foresee some increase in housing inventory for 2024. “There will be more home construction, and more existing homeowners will be willing to sell and give up their low mortgage rates,” he says.

Will home prices go down?

Housing prices have been on fire lately, culminating in historic highs — September’s median of $394,300 was only about $20K short of the highest monthly home price NAR has ever recorded ($413,800, set in June 2022).

So will home prices drop in 2024? Probably not, says Yun: “Home prices will rise around 3 to 4 percent,” he predicts.

Prices are intricately connected with housing inventory, as well, notes Zhao. “Sellers are likely to remain reluctant to give up their low interest rate for a much higher one, so inventory will remain constrained,” she says. “As more time passes, more homeowners may be ‘forced’ to sell due to life events, so inventory may rise from the current anemic levels, but it’s unlikely to increase much. That means that prices are unlikely to fall on a year-over-year basis, unless demand falters.”

Will 2024 be a buyer’s or seller’s market?

In today’s market, tight inventory gives sellers the upper hand. There are more buyers than there are homes available, so each home that comes on the market becomes more of a hot commodity than it might if there were more options to choose from. Without a significant uptick in inventory, the seller’s market seems unlikely to change next year.

“The current significant shortage of inventory suggests it would be hard to [become] a buyer’s market anytime soon,” says Hepp.

“Given expectations about interest rates and supply, demand will probably exceed supply similar to current conditions,” Zhao says. “Supply is likely to remain below what we would deem a balanced market.”

“The plague of low inventory won’t be cured in the short-term, but demand will suffer from high mortgage rates, bringing about more of a balanced market in 2024,” says McBride. “Sellers may find themselves making concessions on closing costs or rate buydowns more often in 2024, and buyers should be wary of biting off more than can be financially chewed. Home prices are at record highs in most markets, the cost of financing is the highest in more than 20 years and insurance costs are up substantially in many coastal markets. You’re not getting a bargain, and the willingness to walk away might prove to be a good choice.”

Bottom line on the 2024 housing market

The combination of high mortgage rates, steep home prices and low inventory levels are lining up to make the 2024 housing market a challenging one for both buyers and sellers. But if rates cool in 2024, as some experts predict, then market activity should heat up in response.

The complexities of the current conditions mean that, now more than ever, it’s smart to lean on the guidance of an experienced local real estate agent. If you want to enter the market in 2024, whether as a buyer or a seller, let a pro lead the way for you.

Written By Ruben Caginalp @Bankrate