A Look Ahead at What 2024 Could Hold for Housing

That’s a Wrap on 2023!

This year was marked by low home value appreciation and slower than normal real estate transaction activity, and staggering high mortgage rates. In October, we actually saw homes trade at a slower rate than they did during the Great Recession. But November brought relief, and rates fell for about 6 straight weeks, then stabilized the last two weeks of the year to round out an interesting year in the real estate market.

Mortgage Rates

Wednesday, in fact, was the most interesting day of the past 2 weeks, but that's not saying much. The past 2 weeks have been the calmest for mortgage rates in more than a year with the average lender essentially unchanged since December 14th. Yesterday's excitement came in the form of a more normal level of volatility. It didn't hurt that the volatility happened to be in the direction of lower rates.

With that moderate improvement, the average lender was still lending just barely at the lowest levels since May 2023. 

The Impact of Rates on Affordability

Deputy Chief Economist & Vice President of National Association of Realtors (NAR) Research, Jessica Lautz said,

“In just 6 weeks of decline, this makes a considerable difference for a home buyer purchasing a $400,000 home. A monthly mortgage payment of $2,135 is a monthly savings of $166. This is considerable, and buyers who have been priced out may start to trickle back in.

For homebuyers who are taking on a mortgage to purchase a home and have been wary of the autumn rise in mortgage rates, the market is turning more favorable, and there should be optimism entering 2024 for a better market. It should be noted that in the most recent months' data in the REALTORS® Confidence Index, 29% of the market is purchasing a home without the use of a mortgage. These buyers are likely indifferent to the mortgage market. Some are investors, but many are primary residence buyers who have built substantial housing equity amid home price gains. While some of these buyers may be local, others may be moving long distances to a more affordable area.

For now, eyes are on the Feds statements, CPI, and the 10-year treasury to see what the end of the year holds for mortgage interest rates. For those interested join NAR's Real Estate Forecast Summit on Dec 12 for a more in-depth forecast.”

Existing Home Sales

In November, the housing market witnessed a turnaround as existing home sales, which had experienced a downward trend for the past five months, increased by almost 1% compared to the previous month, reaching an annualized rate of 3.82 million units. It's worth noting that these sales figures only partially capture the significant decline in mortgage rates over the last two months, suggesting the likelihood of even more robust numbers in the upcoming months. The national median sales price for November stood at $388,000, reflecting a 4% year-over-year increase, according to NAR.

Compared to Last Year

This time last year there was a significant decline in mortgage rates as well. Between late October 2022 and early February 2023, the average 30-year mortgage rates decreased by approximately 1.3% (130 basis points). This reduction played a crucial role in the impressive 14% month-over-month improvement observed in existing home sales in February 2023.

NAR’s Chief Economist, Lawrence Yun seems to agree:

“The latest weakness in existing home sales still reflects the buyer bidding process in most of October when mortgage rates were at a two-decade high before the actual closings in November. A marked turn [upward] can be expected as mortgage rates have plunged in recent weeks.”

What he means is that the majority of the home sales that closed in November went under contract in October, when rates were much higher. (It generally takes 1.0–1.5 months for a deal to close.)

New Home Construction

It’s been said that new construction will lead us (the US housing market) out of the inventory shortages and into affordability. While that may take some time, several years at least, it’s good to see new home starts, new home builder confidence, and overall site traffic all up in recent months:

“With mortgage rates down roughly 50 basis points over the past month, builders are reporting an uptick in traffic as some prospective buyers who previously felt priced out of the market are taking a second look. With the nation facing a considerable housing shortage, boosting new home production is the best way to ease the affordability crisis, expand housing inventory and lower inflation.” — Alicia Huey, NAHB Chairman

End of a Season?

Winter just began but the year is concluding and the stale real estate market season may be as well. First-time buyers traditionally fare better in the winter, as there is less competition from families in the home-buying market. But as the year comes to an end, it’s quite possible that so too are the best opportunities. Following interest rates’ high water mark in October, market fatigue became widespread amongst most sellers and buyers. However, for those who remained in the market, enduring the slowdown in showing and listing activity, there were opportunities for buyers to negotiate with bedraggled sellers. Now with Christmas nearly a week behind us and mightily improved rates since the end of October, there are already signs of the market picking up steam heading into the turn of the new year.

Bottom Line

Homebuyers who’ve been priced out in the last year should find optimism through decreased interest rates in 2024.

As for sellers, prices are predicted to moderate with most experts predicting a modest 2-4% increase in value, though some are calling for as much as 5+% if interest rates dip too low too quickly. Either way, it should be interesting.

Give us a call to discuss how today's market conditions impact you.

If you’d like to read further on what 2024’s real estate market may hold, we’ve curated a short list of articles we think you may want to read before the new year ramps up next week:

• Home Sales Start to Rise Building Momentum for 2024

• NAR Forecasts 4.71 Million Existing-Home Sales, Improved Outlook for Home Buyers in 2024