Housing Bubble: In 2024, the possibility of a housing bubble remains unfounded. Despite some persistent beliefs, the idea of a housing bubble is not only unsupported but also quite far-fetched. The real estate market will continue to experience price increases and higher mortgage rates compared to those during the pandemic, but these are the only significant changes we can anticipate.
Mortgage Rates: Experts foresee a gradual decrease in mortgage rates with the Fed anticipating at least three rate cuts in the coming months, projecting a drop to around 6% by year's end. We feel interest rates will decrease to around 5.25% by December of ‘24 and stabilize between that and 5.75%. Now, the real question isn't about if mortgage rates will decline, but rather how fast the decrease will occur.
Increase in Listings: The rate-locked phenomenon is expected to continue influencing the housing market into 2024. Currently, about 80% of U.S. homeowners with mortgages have interest rates at or below 5%, which explains their reluctance to sell. Nonetheless, as mortgage rates start to fall, getting within 1.5% of their current rates, this shift is likely to motivate some homeowners to consider moving.
Rising Prices: The consensus among many experts is that home prices are set to experience a modest increase, with predictions of around 1% growth in the next year. We feel we expect home prices will either maintain their current trajectory or we will witness a slight uptick of 2-3% versus the modest 1%.
Home Values: Predicting home values coming out of the unusually active markets that we’ve witnessed for the last few years can be challenging. Real estate typically follows a cyclical pattern, suggesting a likelihood of an increase in value. We feel that we will see home values increase and this is due to the continued low inventory, new rate drops, and the increase in demand.
New Construction: The prospect of new construction gaining a larger slice of the market seems highly likely. Homebuilders are expected to expand their market share, driven by incentives like below-market mortgages and rate buy-downs. Similar to 2023, buyers are poised to find the most attractive deals in the newly constructed home segment.
Affordability: The outlook for housing affordability in the coming year is expected to remain steady. We feel that with the upcoming rate drops, home prices steadily increasing, low housing inventory, and home values increasing, we will see affordability continue to decline. Sellers advantage continues.
Home Concerns: Addressing housing issues needs to remain a critical agenda for the U.S. Government. For meaningful progress in housing affordability, cities and counties will need to relax their stringent land use policies, simplify the permitting process, and lower the fees imposed on builders. These costs, which ultimately burden homebuyers, need to be managed effectively, considering the existing financial pressures on potential homeowners.
Foreclosure: The current trends in foreclosure activity indicate a distinct difference from the situation in 2008. Despite a noticeable increase in foreclosure starts, they are still considerably lower than pre-pandemic levels. While delinquency levels are expected to rise in 2024, this increase only represents a return to the long-term average and does not pose a significant concern for the housing market.
Increasing Sales: As we’ve seen over the last few years, the housing market is again likely to see sellers gain an advantage, with the demand for homes surpassing the available supply. Combining the anticipated rate cuts and the demand for housing, we believe the total number of home sales is anticipated to experience an uptick from 2023, bringing the total to approximately 5.3 million sales.
The year 2024 will be very interesting and predictably active in the Real Estate sector. Only time will tell how this will all play out.
