Despite slower home price growth, affordability will be the biggest challenge for homebuyers in 2024, according to the Bright MLS 2024 Housing Forecast. However, more buyers and sellers will return to the market in the coming year as interest rates fall from 22-year highs, and homeowners begin to loosen their grip on 3% mortgage rates as life events prompt more people to move. The result will be more options for home shoppers and a rise in home sales, though market activity is still projected to remain well below typical levels.
As we look towards the real estate market in 2024, there are several key trends and predictions outlined by the Bright MLS forecast that buyers and sellers should be aware of. Firstly, a significant change is anticipated in mortgage rates. These rates are expected to establish a new normal, dropping below 7% in the first quarter of the year.
As the year progresses, they are predicted to fluctuate between 6-6.5%, eventually settling at around 6.2% by the end of the year. This shift in mortgage rates is crucial for both buyers and sellers as it directly impacts affordability and the overall cost of purchasing a home.
Another important aspect to consider is the expected movement in the housing market regarding sales and inventory. The forecast suggests a rebound in existing home sales, which are projected to conclude the year at 4.6 million. This marks a significant 12.1% increase from the low numbers recorded in 2023, though it’s still below the sales numbers typically seen in a regular year. Furthermore, the market is likely to witness more sellers entering due to changing family and financial circumstances. This influx of sellers is anticipated to boost the inventory by 7.6% by the end of 2024. An increase in inventory, coupled with a rise in the number of buyers, is expected to maintain stability in home prices.
Finally, the forecast addresses the dual aspects of affordability challenges and the impact of new home supplies on the market. Despite a general trend of stability in home prices, with the median price in the U.S. expected to rise marginally by 1.5% to $394,200, there are nuances to be aware of.
The growing affordability issues, combined with an increase in the supply of new homes, are likely to lead to a decrease in home prices in specific markets. This trend will be particularly evident in areas like California and Florida. Therefore, both buyers and sellers in these regions need to be particularly mindful of these localized market dynamics when making their real estate decisions in 2024.
“After a very difficult market for buyers who have had to contend with an atypical housing market in 2023, home shoppers will find more listings to choose from in 2024, ” Lisa Sturtevant, Bright MLS Chief Economist said. “At the same time, both buyers and sellers will have to reset expectations next year for persistently higher mortgage rates and more negotiations during the transaction.”
Key 2024 housing trends and the wildcards
A slower start to the spring homebuying season: Although home sales are expected to increase in 2024, Bright MLS’ forecast calls for home sales to remain low in the first quarter of the year, as rates remain around 7% and some prospective buyers will wait, holding out for lower rates later in the year.
“Life happens” will force homeowners out of their sub-3% loans: With nearly two-thirds of U.S. homeowners holding onto a mortgage rate below 4% and rates currently well above 7%, there has been little incentive to sell. However, as rates begin to fall and move closer to 6.5%, homeowners who have been characterized as being “locked in” to their mortgage will increasingly find that changing family and financial circumstances outweigh their low rates. This will lead to more new listings over the course of the year. Inventory will still be below pre-pandemic levels, though the gap will have narrowed so that nationally year-end 2024 inventory will be at 92% of the year-end 2019 level.
Affordability will continue to challenge buyers: Several factors will push and pull at home prices in 2024. More inventory will be generally offset by more buyers in the market. This will keep home prices stable in many markets. But affordability, which worsened significantly over the past year as both mortgage rates and home prices were rising, is going to continue to be a challenge in 2024, particularly for first-time homebuyers. Sellers looking to attract these buyers may need to offer closing cost assistance or other financial incentives to make the numbers work for those in the market for the first time.
Buyers waiting for a major price correction should not hold their breath: There is no evidence to suggest that there will be major, widespread home price corrections in 2024. However, in markets where home prices escalated during the pandemic or where new single-family construction is adding significantly to inventory, buyers could see home prices fall below 2023 levels. Conversely, markets where home prices have been rising in line with wages and inventory remains low, prices will continue to rise in 2024 (see the lists of markets with the largest forecasted increases and decreases below).
Wildcards that could shake up the housing market: The housing market has been anything but predictable in recent years, and there is a risk that political or economic factors could bring the unexpected to the housing market in 2024. Right now, the outlook is for a mild and short recession in 2024, which will not have a major impact on the housing market. However, ongoing global conflicts could increase the U.S. recession risk. Government standoffs and political discord at home can also lead to more consumer anxiety.
