Housing market predictions for 2024

Housing affordability reached a historic low in 2023.¹ The dual pressures of high home prices and high interest rates eroded the buying power of many house-hunters, and home sales stalled after a two-and-a-half-year high. The stagnation of the market contributed to record-low sentiments about the economy and the housing market, with 85% of consumers reporting that they believe now is a bad time to buy a home in Fannie Mae’s November National Housing Survey.²  

Despite the doom and gloom of 2023, economists are doubling down that the housing market is primed to pick back up in 2024. As inflation inches closer to the Federal Reserve’s target of 2%, mortgage rates are expected to soften in the second half of the year, providing the catalyst needed to jumpstart the market.

Where we're at:

• The national median sales price for homes was  $431,000 in Q3 of 2023, according to the U.S. Census Bureau,³ down $37,000 as compared to Q3 of 2022.
• In October 2023, there was a 3.6-month supply of existing single-family homes for sale – a modest uptick from October 2022’s 3.3-month supply, according to the National Association of Realtors.⁴
• Mortgage rates fell from 7.8% to 7.3% in November 2023, but they were still up almost a full point compared to November 2022, when interest rates hovered between 6.6% to 7.1%.
• Homes spent a median of 43 days on the market in May 2023⁵ – generally considered peak home selling season – as compared to just 30 days in May of 2022.

Market recap: 2023 in review

The housing market began showing signs of cooling in 2022, and in 2023, its winter began in earnest. Economists and market experts hoped that rising interest rates would tame buyer demand enough to bring home prices down to more affordable levels — and home prices did fall nationwide at the beginning of 2023.

But the housing market didn’t normalize as expected.

Instead, ballooning mortgage rates constricted inventory. Many homeowners delayed putting their house on the market because it would mean replacing their record-low mortgage rate with a new one twice as high. They simply couldn’t afford to buy a new home.

This low inventory helped to nudge home prices up midyear, putting hopeful buyers in a challenging position with record-high interest rates and rising home prices.

But 2023 wasn’t all bad news. With existing home sales stuck in a stalemate, the new construction market emerged as a bright spot. Sales for new homes picked up after stalling in 2022, providing immediate relief for many buyers frustrated with the market and also helping to offset the estimated 6.5 million homes⁶ that the United States would need to meet current demand.

Was there a crash or correction?

The end of 2022 brought on fears of a market crash similar to the 2007-2008 financial crisis, but the housing market proved to be much more resilient. Instead of a crash, some of the most inflated housing markets across the country went through a brief market correction.

Austin, Texas⁷ is a prime example.

Between July 2022 and April 2023, home prices in Austin fell by 10% – the largest decline in the U.S. At face value, this is an alarming statistic – one that could stoke nightmares of a crash similar to the one that preceded the Great Recession. 

But upon closer examination, it’s evident that there are some key differences. The housing market didn’t halt to a stop: listings continued to sell, albeit at a slower clip than the previous year, when homes sold in less than a week. The local economy continued to thrive, and Austin remained a highly desirable destination for house-hunters.

Moody’s Analytics had estimated that home prices in Austin were inflated by over 60% in mid-2022 – creating a toxic imbalance between what sellers could list for and what buyers could afford to purchase.

The gradual reduction in home prices provided the needed relief for buyers without the sudden hits to home values that hurt homeowners’ equity, providing the exact cooling effect that Austin and many other major cities needed.

What to expect in 2024

There will be no magic cure for the current market woes in 2024, but the potentiality of lower interest rates during the second half of the year may provide relief.

Will mortgage rates drop?

Mortgage rates have already started to drop, dipping below 7% (mid-December) for the first time since August. Meanwhile, the Federal Reserve has committed to fighting inflation until it reaches their 2% target. While the Federal Reserve doesn’t directly impact mortgage rates, their measures to combat inflation do. As they've committed to a 2% target for inflation, it’s likely mortgage rates will remain closer to where they are.

Still, many experts expect that mortgage rates will begin to soften in the second half of 2024, reaching 6.3% to 6.9% by the end of 2024, and about 5.7% by 2025.⁸

Learn more about what affects mortgage rates.

Will inventory increase?

The U.S. housing market has been in a housing deficit since the 2007-2008 financial crisis. In the decade leading up to the financial crisis (between 1997 and 2006), the United States averaged 1.3 million new build permits for single-family homes per year. In the decade following (2007 to 2016), the United States averaged just 609,000 per year.

The U.S. has failed to make meaningful progress in bridging the gap between housing supply and housing demand since recovering from the Great Recession, and now it has an additional obstacle.

A whopping 80% of homeowners⁹ have mortgage rates under 5%, providing a strong incentive for homeowners to delay selling their current home until they can count on buying their new home with a mortgage rate at or around 5%.

This means that inventory is expected to remain constricted for the foreseeable future.

What will happen to home prices?

Forecasts for home prices in 2024 have varied wildly in the lead-up to the new year. Giants like Zillow, Freddie Mac, and the National Association of Realtors expect home prices to rise by almost 3%, while others – like Moody’s¹⁰ and Morgan Stanley¹¹ – expect home prices to drop by as much as 5% in 2024.

But if 2023 was any lesson, low inventory is likely to help keep home prices slowly growing or close to where they are now.

Will 2024 be a buyer’s or a seller’s market?

The new year is poised to be another seller’s market, as the housing shortage continues to plague the U.S., albeit a decidedly more modest one than in 2020 to 2022. Low inventory keeps competition among buyers for available homes high, putting more power in sellers’ pockets.

Tips to navigate as a buyer

If you’re looking to buy in the next year, here’s some advice for navigating the changing landscape:

Seek out new builds

Existing home sales are expected to remain stagnant until mortgage rates come down and sellers can replace their low-interest-rate mortgage with another one. This stagnation of the resale market has new builds poised for another big year.

Some builders have even offered compelling incentives to help bring down the cost of buying new construction homes in the form of rate buydowns and other financial mechanisms that are opening up the new home market to buyers who thought it was out of their reach.

Consider ARMs

Many homebuyers have shied away from adjustable rate mortgages (ARMs) after the 2007-2008 financial crisis and the historically low interest rates for 30-year fixed mortgages that followed. However, as interest rates remain high and stricter lending practices have weeded out subprime loans, ARMs are emerging as a promising financing mechanism for the current market.

These loans offer buyers a lower initial rate that is fixed for a limited time. Once that time period is up, the interest rate is adjusted based on a formula combining the index rate and an agreed-upon margin. While a variable interest rate and fluctuating monthly mortgage payment might sound intimidating, consider that homeowners have the freedom to refinance into a fixed-rate mortgage once interest rates level out again. When you buy a home with Orchard and use Orchard Mortgage, you get no-fee refinancing for life.

Focus on your finances

As mortgage rates settle into a new normal of 6% to 7%, lending practices will have to adapt and get stricter. The most important indicator of affordability are your individual finances. Take a close look at your savings, debts, and credit score, and use a mortgage calculator to estimate your monthly payments.

Tips to navigate as a seller

If you’re putting your house on the market in 2024, here are tips for how to make the most of your home sale:

Prepare your home for market

As the housing market returns to an equilibrium between buyers and sellers, sellers will have to do more to appeal to potential buyers. They can do this by getting their home move-in ready and taking care of any repairs or renovations that need to be done before they list their home.

As many as 80% of homebuyers prefer move-in ready homes, according to a survey by Coldwell Banker.¹² That kind of mass appeal can help entice bidding wars and drive up home value. But you don’t have to do it alone. Orchard’s Concierge service can help you sell for more by making value-boosting improvements to your home at no upfront cost to you.

Interested in learning more? Get started with a free home estimate – our estimates are 30% more accurate.

Use equity to buy next home

Homeowners hesitant to replace their low-interest-rate mortgage with a higher interest rate can help lower their monthly mortgage payments by using their home equity as a down payment on their new home purchase.

Larger down payments can lower homebuying costs by negating the need for private mortgage insurance (PMI) and lowering your loan-to-value (LTV) ratio. 

Homeowners and homebuyers can do this through bridge financing or by working with Orchard. We’ll help you line up closing perfectly so you can use your home equity towards your new home purchase and only move once.

Forget the macro, focus on your local market

All eyes will continue to be on the housing market as the nation seeks a return to normalcy, but with that attention comes a lot of noise. National trends in the housing market are important for their impact on the economy, but they have less bearing on your home sale than what’s happening in your neighborhood.

If you’re wondering if you should put your house on the market in 2024, speak with a local real estate agent. They’ll be able to filter out unnecessary information and provide data-driven insight on the trends that will impact your home sale.

FAQs

Answers to your most commonly asked questions about the housing market in 2024.

Will mortgage rates drop in 2024?

Mortgage rates are expected to soften in the second half of the year but won’t drop dramatically. Mortgage rates have been on a downward trend since in November 2023, and forecasts from leading banks and mortgage lenders⁸ expect that interest rates will reach 6.5% to 6.9% by the end of 2024, and reach 5.7% by 2025.

Will there be a housing recession in 2024?

The housing market is poised for a strong year ahead, as mortgage rates slowly come off their 20-year high and inventory slowly grows. However, concerns of a recession for the U.S. economy continue to haunt homebuyers, sellers, and economists alike. Currently, economists predict a 50/50 chance of a recession in 2024 – the lowest in more than a year.¹³

Should I buy a house in 2024 or wait?

Housing affordability will remain a challenge in 2024, as mortgage rates inch lower but still remain significantly higher than the record lows of 2020 to 2022. However, the market is expected to stabilize in 2024, as inventory and home appreciation return to normal levels. While buyers will have to contend with higher home buying costs, they will have the benefit of navigating a more steady market.

What will mortgage rates be in 2025?

Mortgage rates are forecasted to reach mid-to-high 5% in 2025; however, this figure is likely to change as economists glean more insight from the market. A return to 5% interest rates is largely dependent on the Federal Reserve’s fight against inflation and their ability to cool it without sending the economy into a recession.

References:

1. Federal Reserve Bank of St. Louis: “Housing Affordability Index.” Accessed Dec 5 2023.
2. Fannie Mae: “Consumers Increasingly Sour on Economy, Blame Inflation - National Housing Survey,” Accessed Dec 5 2023.
3. Census Bureau: “Table Q1: New Houses Sold by Sales Price, Q3 2023.” 
4. National Association of Realtors: “Existing Single-Family Home Sales: Months Supply.” Retrieved from FRED, Federal Reserve Bank of St. Louis. Accessed Dec 5 2023.
5. Federal Reserve Bank of St. Louis: “Housing Inventory: Median Days on Market in the United States.” Accessed Dec 5 2023.
6. CNN: “The US housing market is short 6.5 million homes.” Accessed Dec 5 2023.
7. Newsweek: “Austin's Housing Market is Sinking.” Accessed Dec 5 2023.
8. US News & World Report: “Mortgage Rate Forecast: When Will Rates Go Down?” Accessed Dec 5 2023.
9. Money: “Homeowners With This Mortgage Rate Are Twice as Likely to Sell.”
10. Moody's Analytics: “The Outlook for the Housing Market.” Accessed Dec 5 2023.
11. Business Insider: “Home prices could drop 5% next year if mortgage rates stay at 2-decade highs, Morgan Stanley says.” Accessed Dec 5 2023.
12. Coldwell Banker: “Guiding You Home Survey Key Findings.” Accessed Dec 5 2023.
13. Bankrate: “Survey Odds of a recession by September 2024 fall to 46%.” Accessed Dec 5 2023.