First American Data & Analytics is looking into its crystal ball with its Potential Home Sales Model and predicts that 2024 won't be much different than 2023.
"Historically, existing homes have made up nearly 90% of all for-sale inventory. Yet, in today’s housing market, more than 90% of homeowners are financially disincentivized from selling their home because it would cost more to borrow the same amount of money they owe on their current mortgage," Mark Fleming, chief economist at First American, said. "You can’t buy what’s not for sale, and existing homeowners aren’t selling."
The Potential Home Sales model found potential existing home sales decreased to a 5.26 million seasonally adjusted annualized rate for October. This represents a 50.8% increase from the market potential low point reached in February 1993. The market potential for existing home sales increased 1.8% compared with a year ago, a gain of 95,000 sales.
Currently, potential existing home sales are 1,533,500, or 22.6%, below the peak of market potential, which occurred in April 2006.
“The housing market of 2024 will likely present many of the same challenges as the market of 2023, but with the benefit of some added certainty from the Federal Reserve on its monetary policy. The Fed’s own projections indicate that the end of monetary tightening is close, if not already here,” said Fleming. “As a result of more certainty around Fed action, there could be some downward pressure on mortgage rates, or at the very least, some stability."
However, Fleming said even if mortgage rates hit 6.4% it will not significantly alleviate the market from the rate lock-in effect because 90% of homeowners are locked into rates below 6%.
"Even though mortgage rates may decline, it’s unlikely that it will be sufficient to end the sellers’ strike in 2024," Fleming added.
But there is a little hope that things will start moving sooner rather than later.
"The outlook for existing home sales in 2024 is a modest improvement from 2023 levels, but not quite back to historic norms,” said Fleming. “Lower mortgage rates in 2024 will likely not be low enough to end the sellers’ strike entirely, but for those homeowners who do choose to sell, improved affordability for potential buyers means there will be someone to buy it at the right price.”
