There is still a lot of uncertainty heading into the 2024 real estate market. Last year, the “mortgage rate lock-in effect” exerted considerable influence, leaving its mark on everything from housing inventory levels to property transactions. This phenomenon occurred because homeowners were reluctant to relinquish their sub-5% mortgage interest rates, hesitating to sell or buy at higher rates that peaked at 8.43%.
However, as we embark on 2024, signs of change are emerging.
One noteworthy shift has occurred in mortgage rates, which have displayed a consistent downward trend. As of late December, the average rate for a 30-year fixed mortgage stood at 6.61%. This reduction has contributed significantly to a revival in existing home sales, which saw a 0.8% increase from October to November, breaking a five-month decline. This shift, however, did little to curb a year-over-year decline of 7.3% in sales.
Lawrence Yun, the Chief Economist of the National Association of Realtors, maintains an optimistic outlook, suggesting that the recent decline in mortgage rates should contribute to the market opening up. Nevertheless, the path ahead is not without its challenges. Experts, including Danielle Hale, Chief Economist for Realtor.com, foresee the persistence of housing shortages. Amidst these concerns, there is a glimmer of hope as the market anticipates a slight uptick in the construction of single-family homes and the completion of multiple multifamily units, primarily intended for rental purposes.
This infusion of fresh inventory is expected to temper the increase in home and rental prices, although the long-standing shortages are likely to prevent a significant price decline. Odeta Kushi, Deputy Chief Economist at First American, emphasizes the enduring nature of the current acute supply shortage. She points out that, despite a consistent rise in single-family housing starts throughout 2023, bridging the gap created by over a decade of underbuilding will require several years of accelerated construction.
Regarding home price growth, the scenario is set to vary significantly from one market to another. Nationwide sales are projected to experience only a slight increase over the low recorded in 2023. However, certain high-growth regions may witness double-digit increases.
Key Takeaways for the 2024 Real Estate Market:
1. Mortgage Rates and Home Sales: The decrease in mortgage rates signals a positive development, potentially leading to increased home sales. Nevertheless, the ramifications of previous high rates persist.
2. Housing Shortages Persist: Despite a marginal increase in construction, the shortage of homes for sale is expected to persist, impacting both the housing and rental markets.
3. Varied Price Growth: Home price growth will vary from region to region. While some regions may witness substantial increases, others will experience more modest growth.
4. Long-term Solutions Required: Addressing the housing shortage will require a long-term strategy centered on sustained new home construction.
5. Rental Market Dynamics: The completion of multifamily units could alleviate pressures in the rental market, although the effect might be limited given the existing shortages.
As we navigate through 2024, these factors will play a pivotal role in shaping the real estate market. While there are positive indicators, such as declining mortgage rates and an uptick in home sales, challenges, such as housing shortages and unpredictable price growth across various regions, remain.