It’s been a rollercoaster of a few years and no one seems to know where it will end, but industry experts are beginning to offer their predictions.
First American Financial’s Chief Economist Mark Fleming says the outlook for the 2024 housing market hinges largely on the trajectory of inflation and the overall economic health. The Federal Reserve's own projections suggest that its battle against inflation may conclude soon, potentially signaling an end to interest rate hikes. Mortgage rates have already retreated from recent highs of around 8% and may continue to decrease if the Fed confirms the end of monetary tightening.
But “it’s less clear when the Fed may start lowering rates again, what ‘higher for longer’ really means, or what the Goldilocks (not too hot, not too cold, but just right) federal funds rate level even is for this economy,” Fleming said.
Nevertheless, Fleming said, mortgage rates are expected to hover in the range of 6.5 to 7.5%, given the Fed's stance.
Realtor.com's 2024 Housing Forecast, released Wednesday, reveals a glimmer of hope for homebuyers as affordability is expected to improve in the coming year.
“Our 2024 housing forecast reveals the green shoots we've been waiting to see in the housing market and should give buyers some optimism after a grueling few years. Although mortgage rates are expected to ease throughout the course of the year, the continuation of high costs will mean that existing homeowners will continue to have a high threshold for deciding to move, but we will start to see some interest," said Danielle Hale, chief economist for Realtor.com.
Like Fleming, Hale anticipates lower mortgage rates and a slight drop in home prices, making it easier for some buyers to enter the market. The typical monthly purchase cost for the median-priced home listing is projected to be slightly less than $2,200, or about 35% of the typical household income, a slight improvement from the previous year.
Despite this improvement, existing homeowners are expected to remain hesitant to move due to high costs, which have been a trend in recent years. However, moves driven by job changes, family situations, and downsizing to more affordable markets are likely to spur home sales in 2024.
However, while lower and more stable mortgage rates may encourage some homeowners to sell, it won't be enough to meet demand.
The millennial generation, with increased earning power and higher education levels, is expected to drive demand in the housing market. Even though affordability and limited inventory may temporarily delay their transition to homeownership, the millennial "shadow demand" will continue to influence the market in 2024.
House prices are likely to continue their upward trajectory, driven by limited supply. In 2024, while months' supply may increase modestly, it is not expected to return to normal levels unless there is a significant shock to millennial demand, according to Fleming.
