As the year is nearer to an end, data shows the housing market has faced turbulence in 2023. Mortgage rates, hanging around 8%, create uncertainty, while housing prices persist in their upward climb. As a result, housing inventories are declining and a drop in potential home buyers is also noted. This situation raises concerns for both potential homebuyers and those closely watching real estate trends.
Redfin’s Chief Economist, Daryl Fairweather engaged in a discussion with Yahoo Finance to explore reasons behind the current challenges.
According to her, despite the hurdles, there’s optimism for potential relief in the housing market, and insights into the housing market in 2024 are on the horizon.
“In the most probable scenario, rates are anticipated to decrease to approximately 6.5-6.6% by year-end,”
While not a substantial relief, this adjustment could make a significant financial difference for potential homebuyers, potentially saving them hundreds of dollars.
What May Change in the Housing Market in 2024?
People have a desire to buy houses and it’s been building up without reaching a breaking point.
When asked, what changes in the new year? Daryl Fairweather highlights,
“Throughout the year, we’ve observed that even slight shifts in mortgage rates prompt responses from buyers.”
When mortgage rates rise, buyers step back; when they drop, they return to the market. What’s slightly different now is an increasing number of sellers reaching out to sell their homes.
If this trend persists, it could lead to more inventory in the housing market in 2024 and increased home sales without significant price hikes. Initially, everyone was concerned about heightened competition if mortgage rates fell.
Now people are cautiously optimistic about the prospect of more listings, potentially resulting in increased sales without substantial price pressures.
With rates peaking at 8%, each percentage point holds considerable sway over affordability.
So by exploring the mortgage rates, the discussion delves into the question of a potential floor.
Where Does the Outlook Stand?
Daryl explains the horizon for rates is quite open. Historical data shows the unpredictability of rates, and a surprise recession could lead to a significant drop.
In the most likely scenario, rates might stabilize around 6.5%-ish, perhaps 6.6% by the year’s end. While not groundbreaking, this shift could translate into monthly savings of hundreds of dollars for aspiring homebuyers—a noteworthy development in the mortgage cost landscape.
According to Daryl Fairweather’s analysis, there’s an expectation of more listings emerging. The anticipation is for a reduction in the mortgage rate lock-in effect, as individuals grow less patient with selling.
Over the years, potential sellers may have postponed due to higher mortgage rates, anticipating a better market. Currently, there is a noticeable increase in sellers entering the market, believing it’s the opportune moment.
If this trend continues, the outcome could be more inventory and increased sales without significant upward pressure on prices.
What About the Rental Market?
There’s an expectation that the stigma of renting will diminish next year, primarily due to the economics of the situation. Renting is often more cost-effective than owning in many parts of the country.
While many available rentals are smaller, such as one-bedroom or even zero-bedroom units, they don’t necessarily compete directly with larger single-family homes.
If someone chooses to prolong their stay in an apartment before transitioning to homeownership, it’s likely to be viewed as a financially prudent decision in the coming year, rather than as throwing money away on rent.
Experts Diverge in Their Forecasts
Recent indicators point to a potential easing in the housing market in 2024. In November, housing inventory increased by 7.5% year-over-year.
The rise in available homes could intensify competition among sellers, potentially leading to a downward pressure on home prices.
Furthermore, the recent pause in the Federal Reserve’s interest rate increases might spur increased activity in the market.
Buyers may be optimistic that the Fed’s campaign of rate hikes could be concluding.
Although the federal funds rate doesn’t directly affect mortgage rates, mortgage lenders typically adjust their rates in alignment with the Fed rate.
While several experts predict that home prices will either stay steady or continue to rise, some anticipate a modest drop in prices in the near future.