The housing market is set to undergo a significant transformation in 2024 after facing two years of sharp declines, according to insights shared at the National Association of REALTORS® (NAR) virtual Real Estate Forecast Summit. Despite a rocky 2023, where existing-home sales are projected to be 18% lower than those of 2022, experts are optimistic about a rebound in the coming year.
NAR Chief Economist Lawrence Yun, along with other housing analysts, discussed the projections for 2024, highlighting key factors that are expected to shape the real estate landscape. One of the pivotal factors contributing to this positive outlook is the expected easing of borrowing costs. Mortgage rates, having likely peaked and now on a downward trajectory from their recent high of nearly 8%, are anticipated to improve housing affordability.
NAR predicts the 30-year fixed-rate mortgage to average 6.3% in 2024, while realtor.com® projects 6.5%. This drop is expected to entice more home buyers back into the market. Rates near 6.6% enable the average American family to afford a median-priced home without exceeding the commonly used threshold of 30% of their income devoted to housing, as per NAR's data.
The projections indicate a positive shift for existing-home sales, with an expected rise of 13.5%, and new-home sales, which have defied market trends by increasing about 5% this year, potentially seeing a 19% increase by the end of 2024.
Several U.S. metro areas are identified as having the most pent-up housing demand for 2024. Markets such as Austin, Dallas-Fort Worth, and Nashville are among those expected to experience higher sales upticks, driven by job growth as a determinant for long-term housing demand.
However, the optimistic forecasts come with a wildcard – inflation. While experts are hopeful about improvements in overall inflation, concerns arise about its potential impact on long-term interest rates. If inflation doesn't continue to improve, there is a risk of discouraging homeowners from selling and prolonging inventory bottlenecks. Younger generations may face challenges as higher housing costs keep them on the sidelines as renters.
Inflation, though easing overall, is still influencing shelter inflation, a factor crucial to housing costs. The rise in apartment units may help control inflation by bringing rental rates down, providing some relief. Panelists at the summit stressed the importance of monitoring inflation data closely to understand its implications for the housing market.
Challenges persist in the housing market, particularly for first-time buyers and amid record low inventory. Homeowners remain hesitant to sell, and homebuilders have underproduced for decades, resulting in a nationwide shortage of 5 million housing units.
Despite these challenges, current homeowners stand to benefit. Rapid home appreciation in recent years has positioned homeowners to grow their nest egg in 2024. Even in markets expecting slight dips, homeowners have accumulated significant housing wealth. NAR data shows that the typical homeowner has amassed more than $100,000 in housing wealth over the past three years. Comparatively, homeowners have a substantial wealth advantage over renters, with a typical homeowner having $396,200 in wealth versus $10,400 for renters, according to Federal Reserve data.
While challenges persist, the 2024 housing market holds promise for recovery and growth, presenting opportunities and considerations for both buyers and sellers.
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