Analyzing the 2024 Housing Market: Discovering Optimism and Challenges Ahead
The real estate landscape in the United States is expected to see some positive changes in 2024, according to Realtor.com. However, challenges from 2023 will persist, offering a mixed outlook for the housing market.
Mortgage Rates and Home Prices: A Balanced Decline
Realtor.com anticipates a decline in borrowing costs, easing labor and inflation data prompting a dovish turn from the Federal Reserve. While the 30-year mortgage rate is expected to drop, the average is projected to be around 6.8%, providing some relief compared to the peak of 8% in October. This should ease the pressure on buyers, resulting in a 1.7% drop in home prices. The reduction in mortgage payments, coupled with expected income growth, aims to bring the share of household income required for a mortgage payment down to 30% by the end of 2024.
“We’re not going to see a major breakthrough in the logjam that has been the housing market over the last year or so, but 2024 will be a baby step in the right direction,” Chief Economist Danielle Hale said in the report. “It’s going to stop getting worse.”
Housing Affordability: A Step in the Right Direction
While the forecast doesn’t promise a seismic decline, it represents a notable shift from the relentless home price increases observed since 2020. The expected decrease in the income threshold required to afford a home is seen as a positive development, offering a break to prospective buyers. To afford a home, Americans must now make a record $114,627 a year, an October report estimated.
“It will be a bit of a break after what have been pretty relentless home price increases,” Hale said. “It’s going to be a big leap forward for buyers’ mental health. Some of the pressure and sense of urgency will start to let up.”
Supply Challenges: Lackluster Improvement
Realtor.com warns that the housing market’s supply scarcity will likely worsen in 2024. The limited decline in mortgage rates is identified as a contributing factor as the “lock-in effect” from 2023 continues. Homeowners are reluctant to give up current low rates, resulting in a predicted 14% plummet in the inventory of existing homes for sale. While homebuilders have responded to demand, the overall supply remains a challenge.
Rental Market Dynamics: Upsides and Challenges
Increased construction has impacted the rental market, leading to a slowdown in year-over-year rent growth since May. Realtor.com predicts a 0.2% decline in rent in 2024 as vacancy rates rise. However, the report notes that additional construction may have minimal price impact due to high demand. Millennials and Gen Z entering the market are anticipated to sustain robust demand for rental properties. They are actively working towards accumulating the necessary down payment for homeownership.