2023 was not a banner year for homebuyers. Not only were home prices high nationwide, but mortgage rates soared to their highest levels in nearly a quarter-century.
However, as a new year dawns, there is a glimmer of hope on the horizon. A few signs suggest that 2024 could be the year shoppers finally catch a break.
In a recent Zillow forecast of the 2024 housing climate, Skylar Olsen, Zillow chief economist, says:
“I expect the beginning of a long healing process to kick off in the housing market [in 2024]. We know there are a huge number of households in prime home-buying ages waiting for the winds to turn in their favor. While still presenting challenges, the market will be better for buyers.”
Real estate experts say the following factors might make things a bit easier for homebuyers in the new year.
1. Home prices might fall
Homebuyers desperate for a little price relief might get their wish in 2024.
Real estate brokerage Redfin predicts that home prices will start to sink, falling 1% year-over-year in the second and third quarters. Aside from a brief period in the first half of 2023, that would mark the first decline in prices nationwide since 2012, according to Redfin.
As a summary of Redfin’s findings notes:
“Home prices will still be out of reach for many Americans, but any break in the affordability crisis is a welcome development nonetheless.”
Realtor.com expects an even bigger drop, with prices declining 1.7% in 2024.
Meanwhile, Zillow forecasts that home prices will remain steady throughout the year, which would still be a small victory for buyers tired of the soaring values of recent years.
2. Mortgage rates might decline
Zillow says forecasting where mortgage rates are headed is a “nearly impossible task.” But the company notes that inflation appears to be subsiding somewhat, offering hope that mortgage rates will at least “hold fairly steady” in coming months.
Redfin predicts that rates will steadily decline beginning after the first quarter of 2024, settling at about 6.6% by the end of the year. Realtor.com expects rates to decline a tick lower, down to 6.5%.
If rates actually decline, it should increase housing affordability for millions of potential buyers.
3. Reluctant homeowners will finally list their homes
As mortgage rates have soared, people who already own homes have been reluctant to sell.
That is because millions of today’s homeowners got their mortgages when rates were at rock bottom. Now, they fear selling their home and having to take out a much more expensive home loan on a new property.
However, Zillow predicts that homeowners soon will “grow weary of waiting for the historically low rates of 2021 to return” and will finally decide to sell. If true, that should give buyers more homes to choose from.
Not everyone agrees with Zillow’s take. Realtor.com believes the cost of a new mortgage will remain high enough that “existing homeowners will have a very high threshold for deciding to move, with many likely choosing to stay in place.”
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4. Supply-and-demand factors will shift toward buyers
Redfin says that it has seen a double-digit year-over-year increase in the number of homeowners contacting the company and asking for help selling a home.
At the same time, Redfin says there is a small drop in the number of people who are interested in buying homes.
More people wanting to sell and slightly fewer wanting to buy should give shoppers a bit more leverage as they look for homes.
5. Formerly hot markets might start to cool
Markets that have been red-hot might cool a bit in 2024.
Florida has been among the most popular destinations for new homeowners in recent years. However, Redfin says its agents are hearing more inquiries from homeowners in South Florida who want to “cash out” and move to more affordable areas.
Redfin also expects prices to fall “fairly significantly” in some coastal areas of Florida, including North Port and Cape Coral.
In addition, as more employers require workers to return to offices, markets that attracted remote workers could see an exodus. For example, Redfin predicts that tech workers who moved in droves to Boise, Idaho, might find they have no choice except to return to places such as Seattle.
That should provide relief to homebuyers in these formerly hot markets and could be a beacon of hope for shoppers elsewhere if the trend spreads to other markets that have seen values soar.
6. Builders will continue to create a new supply of homes
Prior to the COVID-19 pandemic, builders were not creating enough new homes to keep pace with household formation. That fact exacerbated the shortage of homes available for sale.
But Realtor.com says builders have been “catching up,” and that construction is now near pre-pandemic highs for single-family homes.
Will that bode well for 2024? Unlike Zillow, Realtor.com expects inventory levels to remain very low next year. But the fact that builders are ramping up their efforts is a positive for home shoppers.
7. Artificial intelligence will make it easier to shop for a home
Since 2006, Zillow has used aspects of artificial intelligence (AI) to power Zestimate, the model the company uses to estimate the values of homes nationwide.
Of course, AI has come a long way since then. As 2024 dawns, Zillow expects new tools and technologies to gain prominence, such as the ability for real estate agents to create 3D content in their listings and “more rich media content.”
The result could be a better home-shopping experience for buyers.
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