Improving Affordability and Limited Mortgage Rate Decline
The US housing market is expected to see some improvements in affordability in 2024, according to Realtor.com. However, challenges will still persist. While home prices are projected to drop, the decline in mortgage rates will be limited. The lock-in effect from rates will continue, offering little relief to the market's lack of supply.
Mixed Forecast for the Housing Market
Realtor.com's 2024 outlook suggests that although some relief is on the horizon for the housing market, many of the challenges faced this year will remain. The forecast disappointingly falls short of expectations for a significant improvement in conditions after high rates froze the sector in 2023. Chief Economist Danielle Hale notes that while 2024 will not bring a major breakthrough, it will be a step in the right direction and stop the situation from worsening.
Mortgage Rates and Home Prices
Borrowing costs are expected to decrease as labor and inflation data prompts the Federal Reserve to adopt a dovish stance. This comes after a year of soaring mortgage rates, which briefly reached 8% in October. Realtor.com predicts an average mortgage rate of 6.8%, compared to 7.22% in Freddie Mac's latest survey. Although this decrease may not be substantial, it should alleviate some pressure on buyers who have been rushing to purchase before rates rise further. Consequently, demand is expected to slow down, leading to a 1.7% drop in home prices.
With smaller mortgage payments and anticipated income growth in the coming year, the share of a household's income required for mortgage payments is estimated to decrease from this year's average of 36.7% to 30% by the end of 2024. While the decline may not be dramatic, it provides some respite for buyers who have been facing rapidly rising home prices since 2020. A recent report estimated that Americans now need to earn a record $114,627 per year to afford a home.
Chief Economist Danielle Hale states that this slight decrease in prices will be a welcome relief for buyers and will reduce the pressure and sense of urgency they have been experiencing. It is a step forward for buyers' mental well-being.
Ongoing Supply Scarcity
Unfortunately, the housing market's supply scarcity is expected to worsen, as revealed by Realtor.com. The limited decline in mortgage rates contributes to this issue, with rates in 2024 projected to exceed around 85% of current mortgages. Consequently, the "lock-in effect" witnessed in 2023, where homeowners prefer to keep their current low rates and stay on the sidelines, will persist. Realtor.com predicts a 14% plunge in the inventory of existing homes for sale.
However, relief may come from homebuilders, who have responded to the surging demand this year. Construction of multi-family properties has reached record levels, and continued efforts in 2024 could surpass Realtor.com's inventory expectations.
Rental Upsides
The additional construction in the housing market has already led to some improvements. Rent growth has slowed down since May on a year-over-year basis, and Realtor.com expects a decline of 0.2% in 2024. The influx of multi-family homes has caused vacancy rates to rise, potentially balancing the supply and demand dynamics. Realtor.com even suggests that vacancies have reached levels similar to early 2020.
Despite the scheduled construction through 2024, the impact on prices is expected to be minimal due to the high demand. The report highlights that as Millennials age and more members of Gen Z approach the age of first-time home buying, the current housing landscape will keep these households in the rental market for a longer period. This trend is expected to sustain robust demand for rental properties.
Overall, while the US housing market will experience some improvements in affordability and a slight decrease in home prices, challenges such as supply scarcity will persist. However, ongoing construction efforts and the influx of multi-family properties offer some hope for a more balanced market in the future.
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By: fdemott@insider.com (Filip De Mott)
Title: Housing Market Outlook for 2024: The Good News and the Bad News
Sourced From: markets.businessinsider.com/news/stocks/housing-market-outlook-2024-mortgage-rates-home-prices-supply-rent-2023-12
Published Date: Sat, 02 Dec 2023 13:15:01 +0000
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