Hopeful home buyers are getting an early holiday gift: declining mortgage rates. Since hitting a 2023 high in late October, the average 30-year fixed rate has receded by over half a percent.
The average 30-year fixed rate slid 19 basis points to 7.03% in the week ending December 7, the sixth consecutive week of decreases, according to Freddie Mac. A basis point is one-hundredth of one percentage point.
Yet, despite this easing, a perfect storm 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—who remain more pessimistic than ever about being able to afford a home as we close in on 2024.
Housing Market Forecast for 2024
2023 was a demoralizing year for many aspiring home buyers.
Mortgage rates surged—hitting a high of 7.79%—and median home prices in the third quarter were north of $400,000. Moreover, in July, average monthly payments hit their highest level ever at $2,306, according to Intercontinental Exchange, a financial technology and data services provider.
However, 2024 may be a better year to purchase a home—at least for some. While home prices will likely remain elevated—and even increase in some markets—industry experts expect prices in certain areas of the country to soften.
Economists are also optimistic that the Federal Reserve is done with its 20-month-long rate-hiking campaign after policymakers kept the federal funds rate unchanged for a second straight meeting on November 1 and inflation showed signs of slowing in October. The federal funds rate is the benchmark interest rate financial institutions charge each other for overnight loans; it tends to indirectly influence mortgage rates.
Even so, affordability challenges will continue in 2024. Pent-up demand and low inventory will generally bolster prices, and elevated mortgage rates will remain until the Fed implements cuts to the federal funds rate.
When Will the Housing Market Recover?
For a housing recovery to occur, Gumbinger says several conditions must unfold.
“For the best possible outcome, we’d first need to see inventories of homes for sale turn considerably higher,” Gumbinger says. “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, interest rates would need to cool off.
But 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.
Will Mortgage Originations Remain Low Through 2024?
Eye-popping mortgage rates in the last few years have led to plummeting mortgage applications. However, with rates beginning to recede, purchase and refinance application activity has risen to a small degree.
Despite the improved pace, application activity remains very low due to elevated mortgage rates and perpetuating affordability challenges, according to the Mortgage Bankers Association (MBA).
Even so, there is a bright spot. Mortgage applications for new homes surged by almost 40% in October—the ninth consecutive month of annual growth. Moreover, new construction provided a way into the market for first-time buyers.
Though the MBA expects a mild recession for the first half of 2024, it predicts total mortgage origination volume will increase from an anticipated $1.64 trillion in 2023 to $1.95 trillion next year amid rates drifting down to near 6% by the end of 2024.
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.
Despite low resale stock driving demand for new homes, the home builder outlook has been on a downturn in recent months amid steadily climbing mortgage rates.
The most recent National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) that tracks builder sentiment plunged from 40 in October to 34 in November, its lowest reading since December 2022. A reading of 50 or above means more builders see good conditions ahead for new construction.
Nonetheless, new single-family building permits still managed to tick up slightly in October—the ninth consecutive monthly increase—according to the latest data from the U.S. Census Bureau and the U.S. Department of Housing and Urban Development.
Existing-Home Sales Tank Amid High Rates, Low Inventory
It may not be winter yet, but existing-home sales have plunged into a deep freeze thanks to a lack of affordability and housing stock.
Following a 2.7% rise in September, sales took a 4.1% nosedive in October, with year-over-year transactions dropping nearly 15%. Sales now sit at their lowest levels since 2010, according to the latest monthly data reported by the National Association of Realtors (NAR).
It’s no wonder sales are abysmal, considering the median existing-home sales price rose to $391,800—a 3.4% increase from the previous year and a new record for October. This price growth also marks the fourth consecutive month of annual increases.
“Housing affordability continues to be a major headwind, and many potential buyers are likely caught in the tug of war between holding out and waiting for better pricing and mortgage rate conditions or rushing to beat potentially worse conditions,” said Danielle Hale, chief economist at Realtor.com, in an emailed statement.
Though inventory grew 1.8% as would-be buyers retreated, existing homes sit at a scant 3.6-month supply at the current sales pace. Many experts say a balanced housing market has four to six months of inventory.
Despite all the limp data, some experts say a turnaround is imminent.
“As [2024] unfolds, we should start to see signs of increased activity in both existing and new home sales, accompanied by a boost in active building contributing to housing starts,” says Matt Vernon, head of consumer lending at Bank of America. “It’s an exciting time for the housing market, and staying informed will be key to navigating the changes ahead.”
Sidelined Home Buyers See No Affordability Relief in Sight
If you want to buy a home today, expect to see prices 40% higher compared to February 2020, according to Zillow. In the third quarter of 2023 alone, NAR reports that home prices grew in more than 80% of U.S. metro areas year over year.
Combine sky-high home prices with mortgage rates that have stayed north of 7% since August amid persistent inflation, and it’s no wonder that the latest Fannie Mae Home Purchase Sentiment Index (HPSI) reported a survey-record 85% of consumers saying they need to put home-buying plans on hold.
“Consumers expressed even greater pessimism toward the larger economy this month, in addition to their ongoing frustration with the housing market,” said Doug Duncan, senior vice president and chief economist at Fannie Mae, in a press statement.
Other indices also paint a bleak picture.
For instance, the typical monthly mortgage payment is at an all-time high of $2,866, according to a Redfin report. The figure was $2,395 a year earlier.
First-time buyers hoping to land a home at a lower price point are likely having the hardest time as affordability conditions continue to deteriorate, according to NAR.
The trade association’s First-Time Homebuyer Affordability Index preliminary third-quarter reading came in at 61.9, compared to 65.4 in the second quarter. A reading of 100 indicates that a family earning a median income earns exactly enough to qualify for a mortgage and afford a typical home.
Will the Housing Market Crash in 2024?
Despite some areas seeing price declines, the likelihood of a housing market crash—a rapid drop in unsustainably high home prices due to waning demand—remains low. 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 positive home equity.
Moreover, Orphe Divounguy, senior macroeconomist at Zillow Home Loans, says competition for houses has remained surprisingly resilient despite mortgage rates reaching highs not seen in more than two decades.
“In 2024, I expect we’ll see home appreciation take a step back but not plummet,” Divounguy says, especially as inventory is still constrained. Most experts say supply will remain tight for the foreseeable future.
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?
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 as we prepare to exit 2023, 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—currently we’re seeing low employment and steady wage growth—along with excellent loan quality and expanded financial relief offerings from mortgage servicers.
Massive growth over the past few years in homeowner equity has helped reduced foreclosures as well. 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, foreclosure auctions and lender repossessions should remain below 2019 levels.
Even so, foreclosures have increased this year, raising concerns for some in the industry.
“Foreclosure filings continue to paint a concerning picture,” said Rob Barber, CEO at property data provider Attom, in a report. “While we anticipate a likely decline in the coming months due to the holiday season and other seasonal patterns, we do foresee a continued uptick in 2024 as foreclosure filings make their way through the pipeline.”
In October, foreclosure filings were up 6% from last year, according to Attom. At the same time, foreclosure completions were up 24% from a year ago.
