Many home buyers no doubt are relieved to see this year’s inhospitable real estate market in their rear view mirrors. Mortgage rates nearly hit 8% as prices remained firm, making purchases the most expensive in decades. A limited selection of existing homes on the market added to the pain.
The good news: the outlook for 2024 is brighter. Industry forecasters say rates for the average 30-year mortgage will continue to slide. That will entice more homeowners to list their properties after clinging to their ultralow rates, and bring out more buyers. Forecasters largely see flat-to-positive home price growth—with some areas of the country more likely to see gains than others.
Here are three housing market predictions for 2024:
Mortgage rates will fall—but remain above 6%
Mortgage rates are finished hitting multidecade highs but the road lower could be bumpy. Mortgage rates measured weekly by
Freddie Mac
climbed as high as 7.79% in October, then began cooling. The average 30-year fixed rate was 6.67% for the week ended Thursday.
Declining inflation and coming cuts to the fed-funds rate “will have a ripple effect into the mortgage market,” Jessica Lautz, the National Association of Realtors’ deputy chief economist and vice president of research, told Barron’s in an email.
Forecasters broadly expect mortgage rates in the 6% range through much of next year, with the Realtor group calling an average 6.3%. Such predictions are a breath of fresh air: the buyer of a $400,000 home would save roughly $320 a month at 6.3% versus October’s peak near 8%.
But it may not be an easy ride. A shock to the market’s expectations for six rate cuts in 2024 could drive mortgage rates higher than current levels, says John Toohig, head of whole loan trading at Raymond James.
Futures traders expect the first rate cut to come in March, according to the CME FedWatch tool. Toohig says if those hopes are dashed—either by the Fed itself, or by shifts in expectations before the meeting—mortgage rates could rise. “I don’t think we’re going back to 8%,” he says, adding that rates will drift up between 0.25 to 0.5 percentage points in that time.
Still, the longer term course for mortgage rates is lower: the Mortgage Bankers Association expects the 30-year fixed rate will average 6.1% in the fourth quarter, while
Fannie Mae
foresees rates ending 2024 at 6.5%.
Home prices will walk a fine line between supply and demand
Many forecasters expect prices to gain next year—but increases will be relatively small, and a larger shift in the balance between supply and demand could lead to losses. Certain parts of the country will see prices rise more than others.
In the tug of war between supply and demand in 2023, demand ultimately won: the pool of buyers reduced by the rise in mortgage rates competed over relatively few listings. In recent months, existing-home sales pulled back to the lowest levels in 13 years—and prices measured by the S&P CoreLogic Case-Shiller home price indices notched new highs.
If demand continues to outweigh supply in 2024, that trend could continue. “Home prices are expected to increase as there is limited housing inventory and bidding wars may occur in some local areas,” the National Association of Realtors’ Lautz told Barron’s in an email.
Other industry experts also call for price gains: The Mortgage Bankers Association says prices will rise about 4% between the fourth quarter of 2023 and next year’s fourth quarter, while Fannie Mae foresees prices ending 2024 with a 2.8% gain. Fitch Ratings expects flat-to-3% price growth in 2024.
But the current balance in the housing market, in which demand outweighs supply, could shift in 2024 for reasons including economic weakness or an increase in new homes, Barron’s reported previously.
Redfin
expects prices to dip 1% in the second and third quarters of 2024 as supply rises more than demand, while Realtor.com estimates prices will drop 1.7% as buyers wait for better deals once they eye the prospect of even lower mortgage rates.
Of course, national home prices are of little use when contending with the housing market dynamics unique to various areas. Northeastern and Midwestern markets dominated Realtor.com’s predictions for home price growth in 2024. (Barron’s parent company,
News Corp,
owns Move, which runs the real estate listings sites Realtor.com and Move.com.)
Some forecasters expect that more expensive markets that suffered as mortgage rates rose will bounce back as housing affordability improves. Selma Hepp, CoreLogic’s chief economist, says some markets in California, Washington state, Idaho, Colorado, and Oregon will begin to rebound after suffering home price declines in the past year.
Prices could be softest in home-building hot spots, says Zillow senior economist Nicole Bachaud, citing price declines in Texas over the past year. “That’s not a demand story as much as it’s about strong new construction being able to meet that demand and rebalance the market,” she says. “Tracking 2024 construction hot spots may help identify areas where home value growth will be softer, even if demand isn’t.”
Of the nation’s 100 most populous metropolitan areas, three Florida metros, North Port, Lakeland, and Cape Coral, saw the highest per capita rate of single-family home building permits filed so far in 2023, according to a Barron’s analysis of Census data.
Mortgage rate lock-in effect will lessen
The lock-in effect, a term for when homeowners with ultralow mortgage rates stay put when they otherwise would have sold, was a big theme in 2023. There’s a dual effect: it removes both potential homes for sale, and often prospective buyers.
The median mortgage holder has a rate below 4%, according to ICE Mortgage Technology data—but rates won’t have to go that low to get people moving again.
The lock-in effect will likely still be a factor in 2024, but its power could be diminished as mortgage rates fall. Recent data offer an encouraging sign: Mortgage rates have fallen more than half a percentage point since the end of November. Redfin recently said that more homeowners were reaching out to the brokerage to inquire about selling their home, while new listings have risen above year-ago levels.
A 6% rate is a “critical benchmark,” says Robert Dietz, the National Association of Home Builders’ chief economist. “As rates get closer to 6%, […] buyers and sellers come to the market.” The lock-in effect won’t vanish overnight—Dietz doesn’t expect mortgage rates to fall below 6% until the second quarter of 2025—but lower rates will incrementally bring sellers off the sidelines.
Some homeowners itching to sell could use home equity gains accumulated during the pandemic to offset the impact of a higher rate, says Cris DeRitis, Moody’s Analytics’ deputy chief economist. “You’ll start to see some of that inventory on the market,” he says.
Newly built homes—and favorable discounts and incentives offered by builders to keep up sales volume—could further draw some to the market. Builders in 2023 used discounts and incentives, such as mortgage rate buy-downs, to keep volume up in 2023. Such offerings could continue in 2024.
Write to Shaina Mishkin at [email protected]
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