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What’s in store for residential real estate in the new year? Read on to find out.
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Many people struggled to buy homes in 2023. If you were one of them, you may be wondering what the housing market has in store for 2024.
Without a crystal ball, we can’t be certain. But based on what we know about the real estate market as well as the economy, here’s what prospective buyers can expect in the new year.
1. Home prices are likely to stay high
In the third quarter of 2023, the median home sale price on a national level was $431,000, according to Federal Reserve data. That’s an increase from the second quarter of the year, when the median home sale price was $418,500.
Unfortunately, elevated home prices may be here to stay for a while. Despite the exorbitant cost of signing a mortgage today, buyers are clearly still willing to pay up for a home. And limited inventory is keeping prices strong despite higher mortgage rates.
2. Inventory will likely start off sluggish but potentially pick up later in the year
As of the end of October, there were 1.15 million housing units available for sale, as per the National Association of Realtors. That’s the equivalent of a 3.6-month supply of homes.
But it can take up to a six-month supply of available homes to meet buyer demand in full. So clearly, the market is short a lot of inventory. And things are likely to stay that way, at least in early 2024 due to high mortgage rates.
When mortgage lenders lowered their rates in 2020 and 2021, many current homeowners rushed to refinance. As such, a lot of people are sitting on much lower mortgage rates than the rates available today. Those higher rates are sapping homeowners’ motivation to sell — because who would want to swap a 3% mortgage for a loan at over 7%?
Housing inventory could pick up later in 2024 if mortgage rates start to fall to a notable degree. But because they’re not expected to fall drastically, buyers will likely struggle with inventory issues throughout 2024.
3. Mortgage rates could drop but will likely remain high
Many home buyers are hoping to see mortgage rates return to the 3% range. Unfortunately, that’s unlikely to happen.
As of Nov. 22, the average 30-year mortgage rate was 7.29%, according to Freddie Mac. And while we could see rates fall into the 6% range in 2024, whether they end up below that is questionable.
Much of that will depend on how inflation trends and what the Federal Reserve opts to do about it. Part of the reason mortgage rates are so high today is that the Fed has raised its federal funds rate numerous times since early 2022 to cool inflation. While the Fed doesn’t set mortgage rates, its actions tend to influence them, as well as borrowing rates for credit cards and personal loans.
Now, if inflation cools nicely in 2024, the Fed may opt to cut rates, potentially leading to lower borrowing costs for consumers. And that could extend to home buyers. But even so, no one should expect to see 3% mortgages in 2024.
Will 2024 be an easier year for home buyers than 2023?
It’s tough to say. But if you’re hoping to buy a home in 2024, you can take a few steps to increase your chances of success.
First, try to sock extra money away for a down payment on a home. That way, if prices remain high, you’ll potentially have more wiggle room.
Next, work on boosting your credit score if it could use a lift. The higher your score, the more likely you are to snag a more favorable rate on a mortgage. You can boost your credit score by paying all bills on time, whittling down credit card balances, and reviewing your credit report for errors.
All told, 2024 is shaping up to be yet another tough year for prospective home buyers. But that doesn’t mean you should give up on purchasing a home. Instead, do everything you can to put yourself in a stronger position to meet that goal.
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