The U.S. housing market is on the cusp of a dramatic turnaround, giving buyers the upper hand next year, according to a bold prediction from online real estate brokerage Redfin (RDFN). As mortgage rates recede and more homeowners put their properties up for sale, a shift in the market dynamics is set to create an exciting opportunity for prospective homebuyers.
After a turbulent 2023, where the Federal Reserve’s interest-rate hikes led to a surge in mortgage rates amidst a backdrop of low housing supply and soaring prices, potential relief is finally in sight for buyers.
This past year, an affordability crisis gripped the housing market, with skyrocketing mortgage rates and hesitant homeowners causing a painful standstill. The median U.S. income of $78,642 in 2023 meant that someone purchasing a median-priced home of $408,806 would have had to allocate a staggering 41.4% of their earnings towards housing costs – the highest share in nearly a decade.
Redfin Senior Economist Elijah de la Campa described the confluence of factors in 2023 as “a perfect storm of inflation, high prices, soaring mortgage rates, and low housing supply,” making it the least affordable year for housing in recent history.
Looking ahead to 2024, Campa expressed optimism, stating, “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.”
The average 30-year fixed mortgage rate has already declined to 7.22% from a 23-year high of 7.79% in October, with the Fed’s indication of ceasing interest-rate hikes and potential cuts in 2024 offering further hope to buyers.
Redfin’s predictions for 2024 paint a picture of significant changes in the housing market:
- Home prices are expected to fall by 1% year on year in Q2 and Q3, marking the first decline since 2012, as supply outpaces demand. This follows a 3% year-on-year increase in prices in 2023.
- New listings are projected to increase from the record low seen in 2023, driven by the easing of the mortgage-rate lock-in effect. Sellers, realizing that rates are unlikely to return to pre-2020 levels, are keen to sell before prices fall.
- Home sales are set to rise by 5% year on year to 4.3 million.
- The average 30-year mortgage rate is anticipated to start at around 7% in Q1 before declining steadily throughout the year. This reflects the belief in financial markets that the country will navigate 2024 without a recession and achieve a soft landing.
Similarly, NAR Chief Economist Lawrence Yun shares the optimism, anticipating a buyer’s market in 2024, with existing home sales forecasted to surge by 13.5% year on year to 4.71 million.
Yun remarked, “The demand for housing will recover from falling mortgage rates and rising income. 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.”