Slow and Steady Wins The Race: Housing Market Forecast 2024
Looking back on last year’s forecast, I was optimistic that conditions would improve for buyers. They have…but only after they worsened due to government actions. Curbing inflation amid a spendthrift culture has been a slooooow balancing act that we expect will continue through 2024. The questions that I hear regularly are whether prices or rates are coming down, and inherent in those questions is if people should wait to make a move. Defining what is most important to your lifestyle is critical when making big financial decisions. Having these yearly forecasts, where I review and evaluate the top economists’ projections for the year ahead and compare them to our local market, helps people prepare for their right opportunity and achieve their important goals.
There are no indications that home prices will decline, since we still have strong demand and declining inventory, but there won’t be double-digit appreciation as has been the case locally. In 2023, appreciation was 5.9%, whereas the yearly national average is 2-3%. This year we have seen slower sales in homes that aren’t in premium condition, including longer time on the market and price reductions. We have also been able to secure more home inspections than we were in 2022. This is good news for buyers and also means that sellers need to consider condition more than they have through the pandemic. Nationally, 6.5% of listings have sold less than asking price in 2023. However the inverse case is that 93.5% of homes sold at list price or higher, and 32% of those sold ABOVE list price. Most housing experts predict home price appreciation to reach 2.4% in 2024 and 2.7% in 2025. So prices will continue to rise but not as dramatically. Locally, Norfolk, Virginia Beach, and Suffolk have seen stronger appreciation, which means buying opportunities are going to be better in Portsmouth and Chesapeake. Throughout the country, we will see millennials making geographical shifts that work for them.
Interest rates took all by surprise this year, after Congress tossed the debt ceiling out the window and added $2T to our country’s debt. This in turn caused our credit rating to be downgraded and resulted in higher interest rates. The peak was in October at 7.79% and by the close of this year, rates have started to move down, ending this year at 6.67%, which is right where we were this time last year. The Federal Reserve has indicated they will cut rates 3-4 times in the coming year. Some economists and investors think they will get even more aggressive, possibly cutting rates up to 6 times next year. All economic indicators are that mortgage interest rates will continue to decline, but not quickly… Realtor.com expects rates to be in the 6.5% range by the end of the year, but considering the other projections I’ve read, I think we will land somewhere around 6%.
You will hear all day long that we need more sellers. And although it is true that the lack of supply/inventory has been suppressing the market (see the above diagram provided by MBS Highway), what we ultimately need to achieve a balanced market is for wages to increase. Unemployment rates have been going in the wrong direction, leading us to the verge of a recession. Job creations have been concentrated in part-time, low wage jobs. The higher home prices combined with the higher cost to borrow might be getting the buyer in the home, but resulting in too many of today’s buyers being “house poor.”
However, with 2.07 million “forming households” in the US, the demand for houses is strong enough that going above the target 30% range for a housing budget CAN make sense. Rent prices have increased due to demand, up 10.8% in 2022 and 5% in 2023. Insurance costs and real estate taxes have additionally burdened landlords, who pass those costs along to their existing tenants in the form of rent increases. The “Cost to Wait” can be unacceptable for some, especially in the longer term. The solution lies in temporary alternative living arrangements, which include renting out rooms to traveling medical practitioners, home sharing as a short term rentals for those hoping to enjoy our beautiful coastal region on their vacations, and expanding parental homes to merge family units.
According to Redfin, 2023 was the "Least Affordable Year on Record for Buyers". We can put that squarely in the rearview mirror by securing wage growth and improving job creations, as well as finding alternative ways to bring in income for home owners. Home ownership is still the American Dream and as our millennials start forming their own households and setting down roots, and Baby Boomers decide to make lifestyle changes, we can again reach a balanced market.
Buyers, would you like a “Cost to Wait” scenario provided to you or would you like to examine how lower interest rates CAN actually end up being more expensive to you? Sellers, do you need a roofer, painter, or other contractor to make your home the best it can be in 2024, so it is one of those top choices that moves quickly? Can we discuss ways to reduce certain costs of ownership that can not only benefit you, but help your future buyer be able to afford your home. For a rough estimate on your home’s value, use my Home Valuation Tool. When you are ready for a more precise market value, give me a call and I will come over, make recommendations, and give you a finer snapshot of what you should expect if putting your home on the market in 2024 or beyond. In 2024, a slow and steady balancing for buyers and sellers is what we need for the long run!