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US housing market affordability will improve in 2024, but challenges will remain, Realtor.com said.
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Home prices will drop, but the decline in mortgage rates will be limited.
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The lock-in effect from rates will persist, bringing little relief to the market’s lack of supply.
Some relief is coming for the housing market next year, but many of this year’s challenges will persist, Realtor.com said in a recent 2024 outlook.
Overall, the real estate firm offered a mixed forecast, which will disappoint many Americans hoping for a thaw in conditions after high rates largely froze the sector in 2023.
“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.”
Mortgage rates decline, home prices dip
Borrowing costs will fall somewhat, as easing labor and inflation data prompt the Federal Reserve to turn dovish. This comes after the 30-year mortgage rate soared this year, briefly breaching 8% in October.
However, while some see a drop to as low as 5%, Realtor.com sees an average of 6.8%, compared to 7.22% in Freddie Mac’s latest survey.
Still, this will be enough to take pressure off buyers, who won’t feel rushed to buy before rates rise further. Demand should slow, with home prices dropping 1.7%.
Together with smaller mortgage payments and expectations for income growth next year, the share of a household’s income required for a mortgage payment should slip to 30% by the end of 2024 from this year’s average of 36.7%.
While not a seismic decline, the housing market has rapidly grown more expensive since 2020, requiring Americans to make a record $114,627 a year, an October report indicated.
“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.”
Lackluster supply
Realtor.com also noted that the market’s supply scarcity will only intensify, as next year will still see rates exceed around 85% of current mortgages.
This means 2023’s “lock-in effect” — where homeowners don’t want to give up their current low rates and stay on the sidelines — will persist, causing the inventory of existing homes for sale to plummet by 14%, according to Realtor.com’s prediction.
Relief should come from homebuilders, who have risen to meet surging demand this year. Construction has jumped to record levels for multi-family properties, and continued efforts in 2024 could improve on Realtor.com’s inventory expectations.
Rental upsides
Increased construction has already improved conditions. Year-over-year rent growth started slowing since May, and Realtor.com sees an outright decline of 0.2% in 2024. Builders delivered a flood of multi-family homes, causing vacancy rates to rise. It might have even helped supply outpace demand, Realtor.com said, putting vacancies at the early 2020 level.
Although more construction is scheduled through 2024, the price impact will be minimal due to the high demand for rental properties.
According to the report, “This trend is expected to sustain robust demand for rental properties.”
Read the full story in Business Insider
