When Will Home Prices Be Affordable Again?
Forbes Advisor Staff, Editor Updated: May 9, 2024, 1:22pm
Thanks primarily to an unexpected rise in mortgage rates, which exacerbated affordability challenges, the spring home-buying season has yet to spring to life.
Though newly built home sales are thriving, sales of existing homes, which comprise the lion’s share of the housing market, have stagnated. On the bright side, tepid demand for existing homes is helping boost the country’s low housing supply.
Meanwhile, the home purchasing process edged closer to a colossal shift. In April, a judge preliminarily approved the landmark $418 million real estate broker commissions settlement centering on the National Association of Realtors (NAR). The new rules mandating significant changes to the industry’s long-standing buying and selling model will begin in July.
Housing Market Forecast for 2024
The further rise of already-elevated mortgage rates and home prices in the past few weeks amid a prolonged inventory shortage has dampened the hopes of many prospective buyers.
Yet, despite ongoing affordability hurdles, Fannie Mae forecasts an increase in home sales transactions compared to last year. Experts also anticipate a slower increase in home prices over the course of 2024 compared to recent years. However, price fluctuations will continue to vary regionally and depend strongly on local market supply.
Meanwhile, U.S. home prices posted an annual 6.4% gain in February—the eighth consecutive month of year-over-year increases and the fastest annual rate since November 2022—according to the latest S&P CoreLogic Case-Shiller Home Price Index. Home prices are at or near all-time highs.
Despite the recent run-up in mortgage rates, the month-over-month home price index rose by a robust 0.6%. By comparison, month-over-month index gains averaged 0.2% between 2015 and 2019, according to Selma Hepp, chief economist at CoreLogic.
Will the Housing Market Finally Recover in 2024?
For a housing recovery to occur, several conditions must unfold.
“For the best possible outcome, we’d first need to see inventories of homes for sale turn considerably higher,” says Keith Gumbinger, vice president at online mortgage company HSH.com. “This additional inventory, in turn, would ease the upward pressure on home prices, leveling them off or perhaps helping them to settle back somewhat from peak or near-peak levels.”
And, of course, mortgage rates would need to cool off, but the timeline for that development seems to be getting more protracted now that rates have blown past 7%. For the week ending May 9, the 30-year fixed mortgage was 7.09%.
However, when mortgage rates finally go on the descent, Gumbinger says don’t hope they cool too quickly. Rapidly falling rates could create a surge of demand that wipes away any inventory gains, causing home prices to rebound.
“Better that rate reductions happen at a metered pace, incrementally improving buyer opportunities over a stretch of time, rather than all at once,” Gumbinger says.
He adds that mortgage rates returning to a more “normal” upper 4% to lower 5% range would also help the housing market, over time, return to 2014-2019 levels. Yet, Gumbinger predicts it could be a while before we return to those rates.
Nonetheless, Kuba Jewgieniew, CEO of Realty ONE Group, a real estate brokerage company, is optimistic about a recovery this year.
“[W]e’re definitely looking forward to a better housing market in 2024 as interest rates start to settle around 6% or even lower,” says Jewgieniew
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