The housing market, which has been grappling with affordability challenges not seen since the early 1980s, may start to see some relief later this year. However, according to a new forecast from Realtor.com, the easing won’t be significant enough to make a real difference for most buyers.
Realtor.com predicts a modest 1.7% decline in home prices in 2024, a move that chief economist Danielle Hale describes as “a baby step in the right direction.” While this decrease may be welcome news for potential buyers, it’s unlikely to offset the substantial price increases of recent years or the impact of elevated mortgage rates.
“We’re not going to see a major breakthrough in the logjam that has been the housing market over the last year or so,” Hale stated in the report. “It’s going to stop getting worse.”
The Realtor.com forecast suggests that the market will remain challenging for buyers, characterized by high prices, still-elevated mortgage rates, and a persistent shortage of available homes. While mortgage rates are expected to retreat from current levels, averaging 6.8% for the year and potentially falling to around 6.5% by year-end, this is still well above the 4% historical average between 2013 and 2019.
Despite these challenges, the slight dip in prices and rates could offer some psychological relief to buyers who have felt priced out of the market. “It’s going to be a big leap forward for buyers’ mental health. Some of the pressure and sense of urgency will start to let up,” Hale said.
However, affordability will remain a major concern. Buyers earning the national median income in 2024 are expected to spend an average of 34.9% of their earnings on housing payments, Realtor.com noted. This represents a decrease from a peak of 39% in October 2023 but remains far above the 21% average from 2016 to 2019.
Perhaps the most significant challenge for buyers will be the continued scarcity of homes for sale. Realtor.com predicts that the number of existing homes on the market will fall by 14% this year. This shortage is primarily driven by what economists call the “lock-in effect” – homeowners with low mortgage rates are reluctant to sell and take on higher-rate loans for new purchases.
“We’re talking about moves of necessity for people,” Hale explained, referring to life changes like new jobs, growing families, or retirement that might prompt a move despite unfavorable market conditions.
There is some positive news on the horizon. New home construction is expected to increase slightly by about 0.4%, potentially offering more options for buyers considering newly built homes. Additionally, the rental market may provide some relief, with Realtor.com predicting a 0.2% decrease in rents for 2024.
As the market adjusts to higher interest rates and evolving economic conditions, the latter part of this year may offer relative stability, but not the substantial shift many hopeful buyers have been anticipating.
