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The U.S. housing market is set to move in the direction of buyers next year, online real estate brokerage Redfin (RDFN) predicted, as mortgage rates retreat and more people list their homes for sale.
The potential reprieve for homebuyers comes after a tumultuous 2023, when the Federal Reserve’s interest-rate hikes significantly drove up mortgage rates against a housing backdrop of low supply and high prices.
To be fair, many Americans had locked in low mortgage rates before the Fed’s inflation-induced tightening campaign that started in March 2022, but now-prospective homebuyers have been hit with an affordability crisis. Of course, homeowners with these low rates also have been reluctant to list their homes on the market, putting the overall market at a standstill.
As a testament to how hard it’s been for buyers, someone making the median U.S. income in 2023 of $78,642 would’ve had to spend 41.4% of the earnings on monthly housing costs if they purchased the median-priced home of $408,806, Redfin (RDFN) said in a report this past week. That’s the highest share since at least 2012 and is up 38.7% Y/Y.
“A perfect storm of inflation, high prices, soaring mortgage rates and low housing supply caused 2023 to go down as the least affordable year for housing in recent history,” said Redfin Senior Economist Elijah de la Campa.
Heading into 2024, Campa noted, “mortgage rates are coming down, more people are listing homes for sale, and there are still plenty of sidelined buyers ready to take a bite of the fresh inventory.”
Indeed, the average 30-year fixed mortgage rate has dipped to 7.22% from a 23-year high of 7.79% in October, as the Fed has signaled it’s done raising borrowing costs and will start cutting in 2024. There’s still a big gap left to fill, though, as mortgage rates are more than double the record low hit during the pandemic.
In a separate report, Redfin laid out its predictions for 2024:
- Home prices will fall 1% Y/Y in Q2 and Q3 as supply will rise more than demand. That would mark the first time prices have declined since 2012, with the exception of a brief period in the first half of 2023. Prices are on track to close out 2023 around 3% higher from a year before.
- New listings will climb from the record low set in 2023 “as the mortgage-rate lock-in effect eases. Many are starting to accept that rates won’t drop back to the 3s or 4s anytime soon, and they want to sell before prices fall.”
- Home sales will rise 5% Y/Y to 4.3M.
- The average 30-year mortgage rate will kick off the year at around 7% in Q1, before steadily declining throughout the year. “Mortgage rates are likely to remain well above pandemic-era record lows because financial markets increasingly believe the country will avoid a recession in 2024” – and, instead, pull off a soft landing.
Similarly, NAR Chief Economist Lawrence Yun is also in the camp that a buyer’s market will come to fruition next year. He thinks existing home sales will jump 13.5% to 4.71M Y/Y in 2024, surpassing Redfin’s (RDFN) prediction by a wide margin.
“The demand for housing will recover from falling mortgage rates and rising income,” Yun said in a statement. “In addition, housing inventory is expected to rise by around 30% as more sellers begin to list after delaying selling over the past two years.”
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