Despite recent fluctuations in the housing market, experts predict that home prices will continue to rise in 2024. Leading real estate firms, including Freddie Mac, Zillow, and the National Association of Realtors (NAR), forecast that housing prices will be driven upward due to ongoing demand and insufficient housing supply.
Limited Housing Supply Drives Price Increases
According to Lawrence Yun, NAR’s chief economist, the lack of available homes for sale is the primary factor contributing to the expected rise in home prices. Yun notes that the market has a significant shortage of homes, with the U.S. facing a deficit of around 3.8 million units for both sale and rent. As a result, NAR projects home prices to increase by 2.6% in 2024, driven by continued demand and limited inventory.
The shortage is most evident in the aftermath of the pandemic, when home construction was unable to keep up with the surge in demand. Despite a recent uptick in construction, the gap between supply and demand remains wide. In fact, even with some price declines seen between mid-2022 and early 2023, the overall trend points toward a continued rise in home values.
Impact of Elevated Mortgage Rates
While mortgage rates have significantly impacted affordability, they have not deterred potential homebuyers. As of July 2023, the median home price stood at $406,700, reflecting a 1.9% year-over-year increase. Although mortgage rates remain high, hovering at around 7.28% for a 30-year fixed mortgage, the underlying demand for homes has continued to support home price levels.
Freddie Mac expects mortgage rates to decrease closer to 6% in 2024, which could further stoke demand and push home prices higher. Zillow also forecasts a 6.5% increase in home values between July 2023 and July 2024, despite challenges with affordability.
Mixed Forecasts for 2024
Despite the overall optimism from Freddie Mac, Zillow, and NAR, not all forecasts predict further price increases. Moody’s Analytics and Morgan Stanley expect home prices to decrease slightly in 2024, citing declining affordability as a key factor. Moody’s forecasts a 3.5% drop in median home prices between the fourth quarters of 2023 and 2024, suggesting that the housing correction may not be over.
Conclusion
With a substantial shortfall in housing inventory, prices are expected to continue rising in 2024, especially in areas where demand outstrips supply. Although mortgage rates remain a challenge for buyers, the large cohort of Millennial first-time homebuyers is expected to keep the market active, especially as rates begin to drop. However, concerns over affordability could lead to modest price declines in some regions, making it a mixed outlook for both buyers and sellers in the coming year.