2023 was a wild ride in Real Estate. The year started off with higher interest rates, on top of the already low inventory, while home prices still increased. With the Federal Reserve focusing on lowering interest rates, mortgage rates saw a bit of a roller coaster throughout the year. As the year-round down, there were positive signs for 2024 real estate. The Federal Reserve held rates, and there is some positive activity in new home builds, to help with inventory.
After two years of sharp declines, existing home sales are poised for improvement in 2024.
NAR (National Association of REALTORS®) Chief Economist Lawrence Yun joined other leading housing analysts at NAR’s virtual Real Estate Forecast Summit to discuss sales projections heading into 2024, and the experts agreed that better days are ahead for the real estate market.
Key Highlights
NAR projects 4.71 million existing home sales in 2024, up 13.5% from 2023, and new home sales could increase another 19% by the end of 2024.
Yun forecasts, after eclipsing 8% in late 2023, he expects the 30-year fixed mortgage rate to drop to between 6-7% by the Spring 2024 buying season, averaging 6.3%, while Realtor.com projects 6.5%. This likely will improve housing affordability and entice more home buyers to return to the market. Yun also anticipates that more sellers will enter the market.
"The demand for housing will recover from falling mortgage rates and rising income," Yun said. "In addition, housing inventory is expected to rise by around 30% as more sellers begin to list after delaying selling over the past two years.
Will Housing Inventory Increase?
According to NAR, speaking of much-needed inventory, the housing supply remained very low throughout 2023. The overall number of existing homes on the market for sale as of November sat at 1.13 million units, about even with the 2022 figure of 1.1 million. That represents only a 3.5-month supply, far short of the 5 to 6 months usually needed for a balanced market. Which is low enough to be considered a seller’s market.
Yun said an “oversupply” of new apartment units will hit many housing markets in the coming months, which could bring rental rates down and help better control inflation. Hopefully, he added, that will disincentivize the Fed to continue raising its short-term rates.
For inventory levels to improve significantly, there will 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.
More Supply Could Be Coming with New Home Construction
Yun foresees 1.48 million housing starts in 2024, including 1.04 million single-family and 440,000 multifamily. Further, home builders have underproduced for decades, leading to a shortage of 5 million housing units nationwide, according to NAR research.
With existing inventory so low, home builders are ramping up construction to woo more buyers. Single-family home construction surged 18% in November compared to the prior month and was up 42% compared to a year earlier, the Commerce Department reported. New-home sales rose in 2023 despite higher mortgage rates in the fall. Builders have been offering more incentives, such as buying down interest rates or offering co-op commissions to buyer’s agents, Yun says.
Home builders are forecasting a 4% increase in single-family starts in 2024, banking on expectations that mortgage rates will fall lower and inflation will drop in the new year, says Robert Dietz, the NAHB’s chief economist.
“Even more home building will be needed with the housing shortage persisting in most markets,” Yun says. “Another 30% rise in home construction can easily be absorbed in the marketplace, especially” if mortgage rates decline. "Builders can simply create inventory”
With a decline in mortgage interest rates and an ongoing housing deficit, Robert Dietz, the chief economist for the National Association of Home Builders, is forecasting a gain for single-family housing construction starts in 2024. This will be the first year of increase after declines in 2022 and 2023. “Due to low existing inventory, new construction has increased to approximately one-third of total single-family inventory in recent months, when historically it was only 10% to 15%,” Dietz says.
Will 2024 Be a Buyer’s or Seller’s Market?
Will home prices drop in 2024? Probably not, says Yun: “Home prices will rise around 3 to 4 percent,” he predicts. In a December statement, he elaborated: “Home price appreciation can only moderate from drastically improved supply.”
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 in 2024. He explained NAR's advocacy efforts are working to increase inventory.
Inflation Remains a Wild Card
Danielle Hale, chief economist at realtor.com®, said at the same summit that while she’s optimistic the housing market will improve in 2024, inflation is the issue that could derail optimistic real estate forecasts. If inflation doesn’t continue to improve, she said, it could raise long-term interest rates, which then could discourage more homeowners from selling and prolong the inventory bottlenecks in the market. That could have huge ramifications for the housing market,” Hale said.
Bottom Line on the 2024 Housing Market
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.
