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The good, the bad and the ugly: America’s housing market in 2024

  • Freddie Mac expects mortgage rates to remain in the 6% range this year
  • Better mortgage rates could spur demand, which may push prices higher
  • Housing supply will remain tight in 2024

FILE – In this Oct. 6, 2020 file photo, a real estate brokerage sign stands in front of a house in Norwood, Mass. (AP Photo/Steven Senne)

 

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(NewsNation) — Last year was a terrible time to buy a home as high interest rates and low supply sent sales of previously occupied homes to a nearly 30-year low.

A housing market that had been red-hot during the pandemic suddenly went ice cold. Higher mortgage rates kept would-be sellers on the sidelines, and buyers were left to compete for fewer homes. That put upward pressure on prices, pushing homeownership out of reach for many.

At one point in the fall, the cost gap between owning and renting was the widest since 1996.

Now, with interest rate cuts on the horizon, the housing market may change again. Here’s where it could be headed in 2024.

The good: Easing mortgage rates

After hitting a 23-year high in October, the average long-term mortgage rate has declined and is now the lowest since May. If the Federal Reserve cuts interest rates as expected, mortgage rates could ease throughout the year.

“Falling rates will breathe some life into the housing market with some recovery in home sales,” a recent Freddie Mac forecast noted.

Even with rate cuts and slowing inflation, Freddie Mac expects mortgage rates to remain in the 6% range this year. That’s significantly higher than the 3% rates just a few years ago but a welcome improvement from 8% last fall.

Lower rates would help thaw a housing market that has left homeowners reluctant to sell, thereby limiting supply. An uptick in selling activity is good for housing inventory, but better rates could also mean more competition on the demand side.

The future of interest rates also matters for homebuilders. Sentiment among builders surged in January on the back of falling interest rates. That matters because new homes have come to account for a larger slice of the nation’s inventory recently.

Newly built homes made up nearly one-third of single-family homes on the market in the second quarter of 2023 — the highest share of any second quarter on record.

The bad: Prices may rise

Better mortgage rates will spur demand, which could push prices higher.

Freddie Mac expects home prices to increase by 2.8% in 2024, citing high demand driven by a large share of millennial first-time homebuyers. A separate report from CoreLogic projects home prices will increase by 2.5% nationwide through November.

In some places — like Redding, California, and Bremerton, Washington — CoreLogic expects prices to jump more than 6.5%.

Last year, the median existing home price hit a record high of $389,800, according to the National Association of Realtors (NAR). NAR Chief Economist Lawrence Yun said the rapid three-year rise in home prices is “unsustainable” and could accelerate the country into “haves” and “have-nots.”

Housing has become so unaffordable that a buyer now needs to make roughly $115,000 a year to afford a typical U.S. home, according to Redfin. In 2022, the median U.S. household brought in $74,580 — just 65% of what’s needed to buy a home today.

The gap is even wider depending on where you live. In San Francisco and San Jose, homebuyers must earn over $400,000 to afford a home. 

The ugly: There aren’t enough homes

Supply hasn’t been able to keep up with demand, and that’s unlikely to change in 2024.

Last month, an Axios report found the U.S. is short around 3.2 million homes. A separate analysis by Zillow last June put the deficit around 4.3 million homes.

Freddie Mac noted that the level of inventory in November remained “extremely low by historical standards” due to the “rate-lock effect,” which is when homeowners are unwilling to move because they’re unlikely to get a better mortgage.

That’s especially true when it comes to empty-nest baby boomers, who now own twice as many large homes as millennials with kids.

Today’s housing market has left baby boomers little incentive to sell and nowhere to go even if they wanted to.

“Housing has become really expensive because we are undersupplied. We built fewer homes in the 2010s than any decade going all the way back to the 1960s,” Redfin chief economist Daryl Fairweather told NewsNation Friday. “We really didn’t build for the millennial generation.”

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