Housing Market Outlook for 2024: Navigating the Good and the Bad

Realtor.com’s 2024 outlook sheds light on the US housing market, presenting a mix of positive and challenging developments. Despite some relief on the horizon, the persisting issues from 2023 are expected to cast a shadow over the real estate landscape.

Optimistic News: Mortgage Rates Decline and Home Prices Dip

Chief Economist Danielle Hale notes a positive shift, mentioning a decline in mortgage rates as a result of favorable labor and inflation data. While forecasts vary, Realtor.com predicts an average mortgage rate of 6.8%, providing a slight reprieve for potential buyers. This dip is anticipated to ease the pressure on buyers, leading to a 1.7% drop in home prices.

• Relief for Buyers: With reduced mortgage rates, buyers won’t feel the urgency to make hasty decisions, contributing to a more sustainable market.
• Financial Impact: The decline in home prices is expected to lower the share of a household’s income required for a mortgage payment, potentially reaching 30% by the end of 2024.

Challenges Ahead: Lingering Supply Scarcity

While some aspects look promising, the housing market is set to grapple with a persistent challenge – a lack of supply. The limited drop in mortgage rates plays a role, contributing to the continuation of the 2023 “lock-in effect.” As a consequence, the inventory of existing homes for sale is predicted to plummet by 14%.

Hope on the Horizon: Homebuilders to the Rescue

Amid the supply crisis, hope emerges from the efforts of homebuilders. Their response to surging demand has led to a rise in construction, especially for multi-family properties. While the existing home inventory is expected to decline, sustained efforts from homebuilders may provide some relief, aligning with Realtor.com’s inventory expectations.

Rental Upsides: Meeting Demand through Construction

The surge in construction has already impacted the rental market positively. Year-over-year rent growth is slowing, and Realtor.com anticipates an outright decline of 0.2% in 2024. However, the report highlights a nuanced reality – increased construction may not fully offset demand pressures, especially with Millennials and Gen Z continuing to drive rental demand.

• Extended Rental Market Stay: As younger demographics delay homeownership, sustained demand for rental properties is expected.
• Construction Impact: Despite increased construction, the sheer demand may limit the price impact on rentals.

In summary, Realtor.com’s 2024 outlook paints a complex picture of the housing market. While the anticipated improvements in mortgage rates and home prices bring a sense of relief, the persistent supply scarcity poses a significant challenge. Homebuilders play a crucial role in mitigating this crisis, but the tug of war between demand and supply dynamics is likely to define the real estate landscape in the coming year.