With mortgage rates and home prices both historically high and inventory tight, many prospective sellers and hopeful buyers are feeling nervous about today’s housing market.

As of July 2023, the median sale price for an existing home in the U.S. was a steep $406,700, the highest July price the National Association of Realtors (NAR) has ever recorded and just $7,000 short of the all-time record. And as of late August, the average 30-year mortgage rate had hit 7.36 percent — higher than it’s been in more than 20 years.

Home prices, mortgage rates, and inventory levels will all shape housing affordability in the coming year. Curious about where these trends may go? Read on to learn what the experts predict for the 2024 housing market.

What will happen to the housing market in 2024?

A lot depends on what happens with mortgage interest rates. Rates roughly doubled in 2022, thanks in part to the Federal Reserve’s war on inflation, and have stayed high since. While the Fed does not directly set mortgage rates, mortgage lenders take cues from them, and mortgage rates climbed in tandem with the Fed’s long string of rate hikes.

The Fed’s war on inflation may soon end, however, and rates could fall as a result. “Rising productivity, coupled with tighter financial conditions and the slowdown in hiring and cooling nominal wage growth, are indications that the Federal Reserve’s campaign against inflation might soon be over,” says Orphe Divounguy, senior economist at Zillow.

With inflation easing, many predict that mortgage rates will cool slightly next year, but buyers will continue feeling the squeeze. “Core inflation is expected to remain above the Fed’s target range of 2 to 2.5 percent going into 2024,” says Chen Zhao, who leads the economics team at Redfin. “For housing, that means the start of next year will be pretty similar to this year with slightly lower, but still elevated, mortgage rates. Rates will still be high enough that buyers will still be challenged by affordability, and sellers will still be reluctant to give up their low existing rates.”

Will housing sales decline?

While home prices have certainly held firm this year, the volume of home sales has softened considerably. Existing home sales in July 2023 declined to an annual pace of 4.07 million homes, according to NAR data, which represents a 16.6 percent drop year-over-year. However, these trends may pivot in 2024 if mortgage rates dip as anticipated.

“Retreating mortgage rates will bring more buyers and sellers to the market and get Americans moving again,” says NAR chief economist Lawrence Yun.

“Lower mortgage rates would help spur home sales activity, which are expected to increase in 2024 compared to 2023,” says Selma Hepp, chief economist at CoreLogic. “Declines in mortgage rates will drive more sellers to trade their existing home and help add much-needed inventory to the market, leading to more transactions.”

“Housing sales are expected to increase a bit from this year,” says Zhao. “However,” she qualifies, “we are not expecting sales to increase dramatically, as rates are likely to remain above 6 percent.”

Will housing inventory increase?

Speaking of much-needed inventory, the housing supply has been very low throughout 2023 thus far. The overall number of existing homes on the market for sale as of July sat at 1.11 million units, up slightly from the previous month but down nearly 15 percent from the same time last year. That figure represents only a 3.3-month supply, far short of the 5 to 6 months usually needed for a balanced market.

“There are simply not enough homes for sale,” Yun said in a statement earlier this year. “The market can easily absorb a doubling of inventory.”

For the inventory levels to improve significantly, there would need to be either a surge of homeowners listing their existing properties or a huge amount of new-construction homes hitting the market. While both seem relatively unlikely, Yun does foresee some increase in housing inventory for 2024. “There will be more home construction, and more existing homeowners will be willing to sell and give up their low mortgage rates,” he says.

Will home prices go down?

Housing prices have been on fire lately, culminating in historic highs — July’s median of $406,700 was the highest July median price NAR has ever recorded and only the fourth time that a monthly median has ever exceeded $400,000.

So will home prices drop in 2024? Probably not, says Yun:  “Home prices will rise around 3 to 4 percent,” he predicts.

Prices are intricately connected with housing inventory, as well, notes Zhao. “Sellers are likely to remain reluctant to give up their low-interest rate for a much higher one, so inventory will remain constrained,” she says. “As more time passes, more homeowners may be ‘forced’ to sell due to life events, so inventory may rise from the current anemic levels, but it’s unlikely to increase much. That means that prices are unlikely to fall on a year-over-year basis unless demand falters.”

Will 2024 be a buyer’s or seller’s market?

In today’s market, tight inventory gives sellers the upper hand. There are more buyers than there are homes available, so each home that comes on the market becomes more of a hot commodity than it might if there were more options to choose from. Without a significant uptick in inventory, the seller’s market seems unlikely to change next year.

“The current significant shortage of inventory suggests it would be hard to [become] a buyer’s market anytime soon,” says Hepp.

“Given expectations about interest rates and supply, demand will probably exceed supply similar to current conditions,” Zhao says. “Supply is likely to remain below what we would deem a balanced market.”

Homebuyers will have to navigate the affordability challenges that stubbornly high prices present, says Yun: “It will require careful negotiation to get a better price in 2024.”

The bottom line on the 2024 housing market

The combination of high mortgage rates, steep home prices, and low inventory levels are lining up to make the 2024 housing market a challenging one for both buyers and sellers. But if rates cool in 2024, as some experts predict, then market activity should heat up in response.

The complexities of the current conditions mean that now more than ever, it’s smart to lean on the guidance of an experienced local real estate agent. If you want to enter the market in 2024, whether as a buyer or a seller, let a pro lead the way for you.

Source: bankrate.com ~ By: Ruben Caginalp ~ Image: Canva Pro