When Will Home Prices Be Affordable Again? – Forbes Advisor

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As the spring home-buying season approaches, there are signs that buying and selling activity in the market may not fully bloom.

A combination of still-high mortgage rates and home prices amid historically low housing stock continues to put homeownership out of reach for many—most notably first-time buyers.

Many may have to surrender to the reality of elevated home prices and mortgage rates if they want to buy a home in the foreseeable future.

Housing Market Forecast for 2024

Essentially, all of the 2023 headwinds remain. Elevated mortgage rates, out-of-reach home prices and record-low housing stock continue to make for a perfect unaffordability recipe.

“The recent boomerang in rates has dampened already tentative home-buyer momentum as we approach the spring, a historically busy season for home buying,” said Sam Khater, chief economist at Freddie Mac, in a press statement.

While U.S. home prices declined in December for the second consecutive month, according to the latest S&P CoreLogic Case-Shiller Home Price Index, home prices year-over-year jumped 5%.

Experts anticipate a slower rise in 2024 home prices compared to recent years. Moreover, the fluctuation will vary regionally and depend strongly on local market supply.

Chief economist at First American Financial Corporation Mark Fleming predicts a “flat stretch” ahead.

“If the 2020-2021 housing market was too hot, then the 2023 market was probably too cold, but 2024 won’t yet be just right,” Fleming said in his 2024 forecast.

Will the Housing Market Finally Recover in 2024?

For a housing recovery to occur, several conditions must unfold.

“For the best possible outcome, we’d first need to see inventories of homes for sale turn considerably higher,” says Keith Gumbinger, vice president at online mortgage company HSH.com. “This additional inventory, in turn, would ease the upward pressure on home prices, leveling them off or perhaps helping them to settle back somewhat from peak or near-peak levels.”

And, of course, mortgage rates would need to cool off—which experts say is imminent, despite rates edging back up towards 7%.

However, when mortgage rates finally go on the descent, Gumbinger says don’t hope they cool too quickly. Rapidly falling rates could create a surge of demand that wipes away any inventory gains, causing home prices to rebound.

“Better that rate reductions happen at a metered pace, incrementally improving buyer opportunities over a stretch of time, rather than all at once,” Gumbinger says.

He adds that mortgage rates returning to a more “normal” upper 4% to lower 5% range would also help the housing market, over time, return to 2014-2019 levels. Yet, Gumbinger predicts it could be a while before we return to those rates.

Nonetheless, Kuba Jewgieniew, CEO of Realty ONE Group, a real estate brokerage company, is optimistic about a recovery this year.

“[W]e’re definitely looking forward to a better housing market in 2024 as interest rates start to settle around 6% or even lower,” says Jewgieniew.

Housing Inventory Forecast for 2024

With many homeowners “locked in” at low interest rates or unwilling to sell due to high home prices, demand continues to outpace housing supply—and likely will for a while.

“I don’t expect to see a meaningful increase in the supply of existing homes for sale until mortgage rates are back down in the low 5% range, so probably not in 2024,” says Rick Sharga, founder and CEO of CJ Patrick Company, a market intelligence and business advisory firm.

Housing stock remains near historic lows—especially entry-level supply—which has propped up demand and sustained ultra-high home prices.

Still, some hopeful signs are re-emerging.

For one, home builder outlook, which had been on a downslide, is trending back up amid declining mortgage rates and better building conditions.

The most recent National Association of Home Builders (NAHB)/ Wells Fargo Housing Market Index (HMI), which tracks builder sentiment, rose from 44 to 48 in February. A reading of 50 or above means more builders see good conditions ahead for new construction.

At the same time, new single-family building permits managed to tick up slightly in January—the 12th consecutive monthly increase—according to the latest data from the U.S. Census Bureau and U.S. Department of Housing and Urban Development (HUD).

Residential Real Estate Stats: Existing, New and Pending Home Sales

Though the housing market demonstrated some signs of growth ahead of the spring home-buying season, persistently high mortgage rates may hinder activity from fully flourishing.

Here’s what the latest home sales data has to say.

Existing-Home Sales

Existing-home sales showed tentative signs of a pre-spring thaw in January, climbing 3.1% from the month before, according to the latest data from the National Association of Realtors (NAR).
Sales dipped 1.7% from a year ago.

Meanwhile, home prices continue to grow to unprecedented heights, reaching $379,100, which marks the seventh consecutive month of yearly price increases.

“While home sales remain sizably lower than a couple of years ago, January’s monthly gain is the start of more supply and demand,” said Lawrence Yun, chief economist at NAR, in the report. “Listings were modestly higher, and home buyers are taking advantage of lower mortgage rates compared to late last year.”

New Home Sales

Meanwhile, new homes continued to lure buyers frustrated with the lack of resale inventory.

Sales of newly constructed single-family houses were up 1.5% in January from the month before and 1.8% annually, according to the latest U.S. Census Bureau and HUD data.

The median price for a new home in December was $420,700, widening the gap between existing home prices to $41,600 amid steady demand.

Pending Home Sales

If the latest pending home sales data is a harbinger of spring housing market activity then we’re in for a paltry season.

NAR’s Pending Homes Sales Index sank 4.9% in January compared to the month before and was down 8.8% year-over-year. The West and Northeast saw monthly transaction gains but all four U.S. regions recorded year-over-year declines.

Though Yun expressed optimism about the country’s wealth and stable job market as favorable home-buying conditions, he acknowledged that headwinds remain. “[C]onsumers are showing extra sensitivity to changes in mortgage rates in the current cycle, and that’s impacting home sales.”

Inventory of unsold resale homes inched up 2.0% to 1.1 million between December and January, leaving existing home stock at a scant three-month supply at the current sales pace, per NAR. Many experts say a balanced housing market has a four- to six-month supply.

Home Affordability Outlook Appears Grim Amid Rising Home Prices and Low Inventory

Though down from its 2023 high of 7.79%, the average 30-year fixed mortgage rate in 2024 remains well over 6% amid rising home values. As a result, home buyers continue to face affordability challenges.

Monthly mortgage payments are back on the rise, with the median payment in January climbing to $2,671, up from $2,361 in December, according to Redfin.

And the news doesn’t appear to look much better for eager home buyers in the months ahead.

A panel of 100 housing experts predicts that mortgage rates will stabilize at a median rate of 6% by the end of 2024, per Q1 2024 Pulsenomics and Fannie Mae Home Price Expectations Survey data.

Though seemingly welcome news, the panelists anticipate lower rates will benefit homeowners over home buyers, with lower rates—combined with limited inventory—pushing up home prices.

Pro Tips for Buyers and Sellers

Here are some expert tips to increase your chances for an optimal outcome in this tight housing market.

Pro Tips for Buying in Today’s Real Estate Market

Hannah Jones, a senior economic research analyst at Realtor.com, offers this expert advice to aspiring buyers:

  • Know your budget. Instead of focusing on price, figure out how much you can afford as a monthly payment. Your monthly housing payment is influenced by the price of the home, your down payment, mortgage rate, loan term, home insurance and property taxes.
  • Be flexible about home size and location. Perhaps your budget is sufficient for a small home in your perfect neighborhood, or a larger, newer home further out. Understanding your priorities and having some flexibility can help you move quickly when a suitable home enters the market.
  • Keep an eye on the market where you hope to buy. Determine the area’s available inventory and price levels. Also, pay attention to how quickly homes sell. Not only will you be tuned in when something great hits the market, you can feel more confident moving forward with purchasing a well-priced home. A real estate agent can help with this.
  • Don’t be discouraged. Purchasing a home is one of the largest financial decisions you’ll ever make. Approaching the market confidently, armed with good information and grounded expectations will take you far. Don’t let the hustle of the market convince you to buy something that’s not in your budget, or not right for your lifestyle.

Pro Tips for Selling in Today’s Real Estate Market

Gary Ashton, founder of The Ashton Real Estate Group of RE/MAX Advantage, has this expert advice for sellers:

  • Research comparable home prices in your area. Sellers need to have the most up-to-date pricing intel on comparable homes selling in their market. Know the market competition and price the home competitively. In addition, understand that in some price points it’s a buyer’s market—you’ll need to be prepared to make some concessions.
  • Make sure your home is in top-notch shape. Homes need to be in great condition to compete and create a strong “online curb appeal.” Well-maintained homes and attractive front yards are major features that buyers look for.
  • Work with a local real estate agent. A real estate agent or team with a strong local marketing presence and access to major real estate portals can offer significant value and help you land a great deal.
  • Don’t put off issues that require attention. Prepare the home by making any repairs or improvements. Removing any objections that buyers may see helps focus the buyer on the positive attributes of the home.

Will the Housing Market Crash in 2024?

Despite some areas of the country experiencing monthly price declines, the likelihood of a housing market crash—a rapid drop in unsustainably high home prices due to waning demand—remains low for 2024.

“[T]he record low supply of houses on the market protects against a market crash,” says Tom Hutchens, executive vice president of production at Angel Oak Mortgage Solutions, a non-QM lender.

Moreover, experts point out that today’s homeowners stand on much more secure footing than those coming out of the 2008 financial crisis, with many borrowers having substantial home equity.

“In 2024, I expect we’ll see home appreciation take a step back but not plummet,” says Orphe Divounguy, senior macroeconomist at Zillow Home Loans.

This outlook aligns with what other housing market watchers expect.

“Comerica forecasts that national house prices will rise 2.9% in 2024,” said Bill Adams, chief economist at Comerica Bank, in an emailed statement.

Divounguy also notes that several factors, including Millennials entering their prime home-buying years, wage growth and financial wealth are tailwinds that will sustain housing demand in 2024.

Even so, with fewer homes selling, Dan Hnatkovskyy, co-founder and CEO of NewHomesMate, a marketplace for new construction homes, sees a price collapse within the realm of possibility, especially in markets where real estate investors scooped up numerous properties.

“If something pushes that over the edge, the consequences could be severe,” said Hnatkovskyy, in an emailed statement.

Will Foreclosures Increase in 2024?

In January, total foreclosure filings were up 10% from last month and 5% from a year ago, according to property data provider Attom.

Recent data also suggests broader economic conditions are beginning to have a greater influence on foreclosure activity.

“[E]xternal factors may be at play such as escalating interest rates, inflation, employment shifts and other market dynamics,” said Rob Barber, CEO of Attom, in a report. However, Barber acknowledged that an acceleration in post-holiday filings was also likely a contributing factor.

Lenders began the foreclosure process on 21,770 properties in January, up 6% from the previous month and 5% from a year ago.

Despite foreclosure activity trending up nationally, experts generally don’t expect to see a wave of foreclosures in 2024.

“Foreclosure activity is still only at about 60% of pre-pandemic levels … and isn’t likely to be back to 2019 numbers until sometime in mid-to-late 2024,” says Sharga.

The biggest reasons for this, Sharga explains, are the strength of the economy—we’re still seeing low unemployment and steady wage growth—along with excellent loan quality.

Massive home price growth over the past few years in homeowner equity has also helped reduce foreclosures.

Sharga says that some 80% of today’s homeowners have more than 20% equity in their property. So, while there may be more foreclosure starts in 2024—due in part to Covid-era mortgage relief programs phasing out—foreclosure auctions and lender repossessions should remain below 2019 levels.

When Will Be the Best Time To Buy a Home in 2024?

Buying a house—in any market—is a highly personal decision. Because homes represent the largest single purchase most people will make in their lifetime, it’s crucial to be in a solid financial position before diving in.

Use a mortgage calculator to estimate your monthly housing costs based on your down. But if you’re trying to predict what might happen next year, experts say this is probably not the best home-buying strategy.

“The housing market—like so many other markets—is almost impossible to time,“ Divounguy says. “The best time for prospective buyers is when they find a home that they like, that meets their family’s current and foreseeable needs and that they can afford.”

Gumbinger agrees it’s hard to tell would-be homeowners to wait for better conditions.

“More often, it seems the case that home prices generally keep rising, so the goalposts for amassing a down payment keep moving, and there’s no guarantee that tomorrow’s conditions will be all that much better in the aggregate than today’s.”

Divounguy says “getting on the housing ladder” is worthwhile to begin building equity and net worth.

Frequently Asked Questions (FAQs)

Will declining mortgage rates cause home prices to rise?

Declining mortgage rates will likely incentivize would-be buyers anxious to own a home to jump into the market. Expect this increased demand amid today’s tight housing supply to put upward pressure on home prices.

What will happen if the housing market crashes?

Most experts do not expect a housing market crash in 2024 since many homeowners have built up significant equity in their homes. The issue is primarily an affordability crisis. High interest rates and inflated home values have made purchasing a home challenging for first-time homebuyers.

Is it smart to buy real estate before a recession?

If you’re in a financial position to buy a home you plan to live in for the long term, it won’t matter when you buy it because you will live in it through economic highs and lows. However, if you are looking to buy real estate as a short-term investment, it will come with more risk if you buy at the height before a recession.