As we wrapped up a challenging year for residential real estate, we’re taking a look back at the housing report for 2023 before we preview 2024. Zillow economists predict that buying a home could remain expensive in 2024, but slightly less so than in 2023. This relief won’t necessarily come from a drastic drop in mortgage rates, but the Fed’s recent indication of rate cuts in 2024 suggests mortgage rates could move lower to engage more buyers. And as competition remains high for lower priced homes, fixer-uppers will see increased interest. Across the price spectrum, many homeowners will end their holdouts for lower rates due to life changes that can no longer wait. Let’s get into the details with Zillow Senior Economist Orphe Divounguy.
More homes will hit the market as homeowners accept higher rates
Zillow economists predict that the historic inventory lows of the last few years are behind us.
Buyers should be ready for more competition in the spring, but so should sellers. That wasn’t always the case in 2023, with many markets experiencing sluggish stretches, especially for more expensive homes. Homes that garnered attention in 2023 may need more competitive pricing, repairs, and enhanced curb appeal.
Interest rates could fall modestly and stabilize
The Consumer Price Index measures inflation, which is approaching the Fed’s 2% target. “It’s not just how high mortgages are — but also the uncertainty surrounding the big jumps that causes people to pull back and wait things out,” Divounguy says.
Rates have fluctuated wildly for the last two years, but there’s reason to believe that will subside in 2024. Inflation continues to decrease toward the Fed’s 2% target, which could bring more stability to the housing market. “We could see fewer of these big jumps in treasury yields and mortgage rates,” Divounguy says. But he cautions that we shouldn’t expect a big drop in mortgage rates, even if the Fed makes cuts next year.
Affordability will improve as wages continue to grow
After sharp drops during the pandemic, real hourly wages are climbing again. When controlling for inflation, real wages for many Americans are increasing. And the stock market, after decreasing in 2022, surprised this year: The S&P 500 is up roughly 16% year over year, signaling that financial wealth is also on the rise. Higher real incomes mean higher purchasing power for housing at the start of the new year. “Along with declining rates in November, mortgage applications increased for 5 consecutive weeks. A resilient economy with rates staying where they are or falling just slightly is a windfall for housing,” Divounguy says. “It means affordability is likely to improve over the next year. ”
Comments