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A Look Ahead at Real Estate Market Conditions in 2024

Interest rates remain unchanged since the summer, but several cuts are projected for 2024.  A group of thirty-four economists, surveyed by the Philadelphia Federal Reserve in the United States' oldest quarterly economic forecast survey, predict that the real GDP will grow by 1.7% in 2024. Despite challenges faced by the U.S. economy in the past year, around 3 million jobs were created during this period. Forecasters anticipate a slight rise in unemployment in 2024 as the economy stabilizes following the unprecedented period since 2020.

Limited housing supply will continue to headline the news in 2024.  The ongoing scarcity of listed properties is some 40% lower than 2019 inventory levels.  Despite ongoing economic headwinds, after a decade of underbuilding, there simply aren’t enough homes to meet demand.  The National Association of Home Builders (NAHB) projects that single family starts for 2024will decline a few percentage points from 2023 which is down 3.4% from 2022.  To see a substantial improvement in inventory levels, there would need to be a significant increase in homeowners putting their properties on the market or a large influx of newly constructed homes becoming available.  It appears that neither of these scenarios is likely to occur in 2024.  

Thirty-year fixed mortgage rates hover around 7% as we begin 2024.  Many homeowners, having secured ultra-low interest rates, are choosing to stay in their homes.  Fannie Mae reports that the share of people saying it is a good time to sell a home is at its lowest point since 2017.  The Baby Boomers, who are the second largest demographic group, are opting to age in their current homes instead of downsizing to capitalize on record-high selling prices. This reluctance to move is partly due to the previously mentioned low interest rates they have locked in. Additionally, a significant reason is the lack of suitable alternative housing options available to them.  For those that do move, adjustable-rate mortgages (ARM’s) are increasingly popular for buyers.

Homeowners continue to enjoy very high levels of home equity which helps to prevent a deep housing recession.  In a slow economy, homeowner equity serves as a financial safety net, enabling homeowners who are short on cash to tap into funds through a home equity line of credit. Given that the average American homeowner has $200,000 in equity, a glut of foreclosures that could potentially drive prices down is not anticipated.  The consensus is that in 2024, home prices will either stay stable or experience a slight increase of a few percentage points. However, this doesn't mean that home builders aren't offering incentives to sell their properties—mortgage rate buydowns being the most favored option as they lower monthly payments.

There are conflicting signs that make the outlook for 2024 uncertain. With inflation at 4%, it's nearly twice the ideal rate preferred by the Federal Reserve. High inflation combined with record interest rates is leading to consumers ending the year with an additional $100 billion in credit card debt, as per WalletHub data. Credit card debt, being costly, is increasingly being carried over from month to month by more cardholders affecting their ability to qualify for and purchase a home. Moreover, with many young Americans resuming their student loan payments post-COVID, federal student loan rates have risen to 5.50%, up from 3.73% in the 2021-22 academic year. This increase adds to the challenge of affording a home. Despite these factors, as long as employment remains stable, the overall economy is expected to stay resilient.

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