The spring home-buying season that many had hoped would bring relief to prospective buyers ended up presenting even more challenges. The combination of high mortgage rates and home prices has made it difficult for many to secure a new home. However, there is a glimmer of hope as more resale inventory has entered the market, which has started to slow down the pace of home price growth.
Current Housing Market Challenges
Despite an increase in resale inventory, buyers are still facing significant hurdles. Elevated mortgage rates continue to be a major obstacle, keeping many prospective buyers on the sidelines. Additionally, although the median price for new homes has fallen below the median resale home price, builders are still offering incentives to attract buyers.
Experts agree that the housing market will only gain momentum once mortgage rates decrease enough to improve affordability and encourage homeowners with low-rate mortgages to consider moving.
Housing Market Forecast for 2024
According to experts, the housing market is expected to improve, albeit slowly. High mortgage rates, steep home prices, and sluggish sales transactions are dampening demand. One major factor delaying the market’s recovery is the slow cooling of inflation, which in turn delays the Federal Reserve’s ability to cut the federal funds rate. Mortgage rates are indirectly tied to this benchmark interest rate, and with it at its highest in over two decades, affordability remains a significant issue.
In April, U.S. home prices saw a 6.3% annual gain, according to the S&P CoreLogic Case-Shiller Home Price Index. Although this was a slight slowdown from the 6.5% gain in March, the index still hit a record high.
A Fed rate cut is expected to stimulate the housing market, but it remains uncertain when—or if—this will happen in 2024.
Conditions for a Housing Market Recovery
For the housing market to recover, several conditions must be met. Keith Gumbinger, vice president at HSH.com, states that an increase in home inventory is crucial. This would ease upward pressure on home prices, potentially leveling them off or reducing them from peak levels. Mortgage rates also need to decline gradually. A rapid drop in rates could surge demand, wiping out any inventory gains and causing home prices to rebound. Gumbinger suggests that rates returning to the upper 4% to lower 5% range would help the market return to 2014-2019 levels, but this may take time.
Impact of NAR’s Settlement Agreement
The National Association of Realtors (NAR) has agreed to pay $418 million to settle antitrust lawsuits filed in 2019 on behalf of home sellers. The new rules, effective August 17, will prohibit broker compensation offers on multiple listing services (MLS) and require written representation agreements with buyers. This change could impact the housing market by altering traditional compensation structures.
Housing Inventory Forecast
The inventory shortage remains severe despite more resale homes entering the market. Many homeowners are “locked in” at ultra-low mortgage rates, unwilling to move to a higher rate in a high-priced market. This imbalance of supply and demand is expected to persist, with experts like Rick Sharga, founder and CEO of CJ Patrick Company, not anticipating a meaningful increase in existing home supply until mortgage rates fall to the low 5% range, likely not in 2024.
New home construction has helped, but not enough to fill the inventory gap. The U.S. is still short by 4.5 million homes, according to Zillow.
Builder Sentiment and New Home Sales
Builder sentiment has declined, with confidence slipping from 45 to 43 in May, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index. New home construction has also slowed, with permits for single-family homes falling and housing starts and completions decreasing.
However, 25% of builders reduced prices in May to boost sales, offering some hope for buyers.
Existing and New Home Sales
Existing-home sales dipped 0.7% in May, marking the third consecutive month of declines due to high mortgage rates and prices. Experts believe sales will improve once inflation eases and the Fed cuts interest rates. However, the median price for existing homes hit a record high of $419,300 in May, a 5.8% increase from the previous year.
New home sales also suffered, with a significant drop in May. The slow pace of sales has increased new home inventory, providing some leverage to buyers. The median price for new homes fell slightly to $417,400 in May.
Pending Home Sales
NAR’s Pending Home Sales Index showed a decline in May, following a significant drop in April. The index, a leading indicator of closed existing-home sales, suggests that home sales may not pick up significantly through summer.
Pro Tips for Buyers and Sellers
Experts offer several tips for navigating the tight housing market:
For Buyers:
- Know your budget and focus on what you can afford monthly.
- Be flexible about home size and location.
- Monitor the market where you hope to buy.
- Don’t be discouraged and stay informed.
For Sellers:
- Research comparable home prices.
- Ensure your home is in excellent condition.
- Work with a local real estate agent.
- Address any repair issues promptly.
Will the Housing Market Crash in 2024?
Despite high home prices, a market crash is unlikely in 2024. The low supply of houses and secure footing of today’s homeowners, with substantial home equity, protect against a crash. Experts predict home appreciation may slow, but not plummet.
Foreclosures in 2024
Foreclosure activity remains below pre-pandemic levels, with a slight increase in foreclosure starts but a decrease in completed foreclosures. Homeowners’ significant home equity helps prevent a wave of foreclosures.
Best Time To Buy a Home in 2024
Buying a home is a personal decision, and timing the market is challenging. Experts suggest that the best time to buy is when you find a home that meets your needs and budget. Building equity and net worth is worthwhile, even in a fluctuating market.
The housing market remains complex, with affordability challenges and inventory shortages. However, gradual improvements in mortgage rates and increased inventory could provide relief to prospective buyers in the coming years.
