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As we venture into 2024, the real estate market remains a topic of intense interest and speculation. Last year, the “mortgage rate lock-in effect” was a defining factor, significantly impacting everything from inventory levels to home sales. This phenomenon occurred due to homeowners clinging to their sub-5% mortgage interest rates, deterring them from selling and buying at higher rates, which peaked at 8.43%. But as we step into 2024, the landscape shows signs of change.
A notable shift has been observed in mortgage rates, which have steadily declined. As of late December, the rate for a 30-year fixed mortgage averaged 6.61%. This reduction has significantly boosted existing home sales, which grew by 0.8% from October to November, breaking a five-month decline streak. However, this is set against a year-over-year fall of 7.3% in sales.
Lawrence Yun, the Chief Economist of the National Association of Realtors, is optimistic, suggesting that a significant turn can be expected due to the recent plunge in mortgage rates. But the road ahead has its challenges. Experts, including Danielle Hale, chief economist for Realtor.com, anticipate that housing shortages will persist. However, there’s a silver lining as the market will see a slight increase in single-family home construction and the completion of numerous multifamily units, primarily destined for rentals.
This influx of new inventory is expected to moderate the rise in home and rental prices, even as the long-standing shortages prevent prices from falling significantly. Odeta Kushi, deputy chief economist at First American, highlights the enduring nature of today’s acute supply shortage. She points out that, despite a steady increase in single-family housing starts through 2023, it will take years of accelerated construction to bridge the gap caused by over a decade of underbuilding.
Regarding home price growth, the scene is set to vary significantly from one market to another. Nationwide sales are projected only slightly to increase over 2023’s low. However, certain high-growth areas might witness double-digit increases, indicating that real estate activity will be far from uniform across different regions.
Forecasting the Future: Key Takeaways for the 2024 Real Estate Market
- Mortgage Rates and Home Sales: The drop in mortgage rates is a positive sign, potentially leading to increased home sales. However, the impact of previous high rates continues to linger.
- Housing Shortages Persist: Despite some increase in construction, the shortage of homes for sale is expected to continue, affecting both the housing and rental markets.
- Varied Price Growth: Home price growth will not be uniform. Some regions may see significant increases, while others experience more modest growth.
- Long-term Solutions Required: Addressing the housing shortage requires a long-term strategy focused on sustained new home construction.
- Rental Market Dynamics: Completing multifamily units could relieve the rental market, though the impact might be limited given the existing shortages.
As we navigate through 2024, these factors will play a crucial role in shaping the real estate market. While there are positive signs, such as falling mortgage rates and a boost in home sales, challenges like housing shortages and uneven price growth across different regions remain. The real estate landscape for 2024 is set to be a complex mix of slow recovery, continued challenges, and uneven growth across various markets.
