Will 2024 be a good year to buy a home in the US?

(CNN) — Real estate economists who offered forecasts for 2023 were wrong.

Few thought home sales would fall as much as they have this year, falling about 17% from a peak in February to a trough in October, according to the National Association of Realtors (NAR).

Most believed that housing prices would not rise much. However, prices are at an all-time high this year, up 7% year-to-date and now 1% higher than their 2022 peak, according to Case Shiller.

And virtually no one expected mortgage rates to reach nearly 8%. When the average 30-year fixed-rate mortgage hit 7.79% in late October, it was the highest level in 23 years, according to Freddie Mac.

All of this has combined to create the least affordable housing market in a generation. Sales of existing homes have fallen below 4 million units, reaching levels last seen in 2010. But still, even with fewer buyers, home prices continued to rise because there weren’t enough homes on the market and competition drove up prices.

Will this forecast improve in 2024? What should home buyers expect in the next year?

“Earlier this year, I called 2023 a year of disappointment,” said Jonathan Miller, president and CEO of Miller Samuel Real Estate Appraisers and Consultants. “I call this year ‘the year of gradual change.’

The idea, he said, is that 2024 will bring gradual improvements in home sales, prices and mortgage rates, but there will be few dramatic movements.

For homebuyers weary and afraid of big swings and sudden shocks in the market, this may be a welcome change of pace.

Rates should come down a bit

Mortgage rates have already fallen for nine weeks in a row and are expected to fall further in 2024, although they are unlikely to fall below 6%.

The average rate on a 30-year fixed-rate mortgage has fallen nearly one percentage point this year, reaching 6.61% in the last week of December.

The Federal Reserve’s historic campaign to control inflation by raising interest rates has had a powerful impact on the housing market, reducing demand as rates rise and driving potential home buyers out of the market.

“The rise in mortgage rates in 2022 and 2023 was perhaps the main reason the housing market remained stuck in neutral,” said Skylar Olsen, chief economist at Zillow. “The recent drop in mortgage rates has sparked a lot of activity.”

Rates in the 3% range seen in 2020 and 2021 will not return, he said, “at least not without another economic crisis, which we do not want and should not expect.”

Still, he said, “a slow, steady decline—or even a rate holding steady—in 2024 would be a welcome break from the relentless and unpredictable rises of the past two years.”

Realtor.com predicts that mortgage rates will average about 6.8% through 2024 and closer to 6.5% by the end of the year.

Lawrence Yun, NAR’s chief economist, said he expects the 30-year fixed mortgage rate to average 6.3% in 2024 and that the Federal Reserve will cut rates four times. This could calm inflationary conditions in response to the slowdown in economic activity.

Availability will improve slightly

In October, the typical home buyer would have spent more than 40% of their income on mortgage payments. That’s the highest rate since the 1990s, according to Zillow.

As mortgage rates drop slightly in the new year and more homeowners who have maintained their ultra-low mortgage rates see the gap between their current rate and the current mortgage rate narrow, more homeowners will put their homes on the market.

This will lead to more inventory in the market, allowing prices to fall slightly in some markets and stop rising in others.

But anyone holding their breath at the thought of plummeting house prices might turn blue.

Zillow’s latest forecast suggests home values ​​will remain stable in 2024, falling just 0.2% by year’s end. Realtor.com’s forecast suggests home prices will fall some more, falling 1.7% in 2024 from this year.

According to NAR’s latest forecast, the median home price will increase slightly, reaching $389,500 in 2024, up 0.9% from this year.

With current mortgage rates of 6.6%, the average American family can afford to buy an average-priced home without spending more than 30% of their income, which is the standard affordability threshold, according to NAR.

At 6.6%, it is estimated that 4.5 million households will once again be able to afford an average-priced home.

Home sales expected to rise in 2024

As higher inventories and slightly lower mortgage rates create more opportunities for buyers, sales of existing homes are expected to increase, according to NAR’s forecast.

Yun projects 4.71 million existing homes will be sold, up about 13.5% from this year, which is projected to end with 4.1 million units sold.

Yun also predicts that continued growth in new home construction will continue to push up inventories. Projections call for 1.48 million homes to be built in 2024, including 1.04 million single-family homes and 440,000 multifamily homes.

Given the pent-up demand, Austin, Texas, will be the best real estate market to watch, he said.

“Southern metropolitan markets are likely to outperform due to faster job growth, while Midwestern markets will see the benefit of being in the most affordable region,” Yoon said in a statement.

Other areas where NAR expects markets to outperform the national average include the following cities: Dallas-Fort Worth, Texas; Dayton, Ohio; Durham and Chapel Hill, North Carolina; Harrisburg, Pennsylvania; Houston; Nashville, Tennessee; Philadelphia; Portland, Maine; and Washington.