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As we step into the promising realm of 2024, the real estate market beckons with anticipation and uncertainty. The echoes of the “mortgage rate lock-in effect” from the previous year still linger, but the changing tides of mortgage rates and housing shortages present new dynamics that will shape the landscape in the coming months.
In 2023, homeowners clung to their sub-5% mortgage interest rates, creating a significant hurdle for potential buyers as rates peaked at 8.43%. This reluctance to part with favorable rates decreased inventory levels and home sales. However, as we delve into the first quarter of 2024, a notable shift has emerged in the form of declining mortgage rates.
As of late December, the average rate for a 30-year fixed mortgage stood at 6.61%, a welcome decrease from the previous highs. This reduction has breathed new life into existing home sales, marking a 0.8% increase from October to November and breaking a five-month decline streak. Despite this positive momentum, year-over-year sales still reflect a 7.3% dip.
Lawrence Yun, the Chief Economist of the National Association of Realtors, remains optimistic about the potential for a significant turnaround in the market due to the recent plunge in mortgage rates. However, challenges persist, with housing shortages at the forefront of concerns. Danielle Hale, chief economist for Realtor.com, predicts that the shortage of homes for sale will continue. Nevertheless, there is a glimmer of hope as the market is expected to witness a slight uptick in single-family home construction and the completion of numerous multifamily units primarily intended for rentals.
The influx of new inventory is anticipated to mitigate the rise in home and rental prices, providing some relief to prospective buyers and tenants. Odeta Kushi, deputy chief economist at First American, emphasizes the long-lasting nature of the current supply shortage. Despite a steady increase in single-family housing starts throughout 2023, bridging the gap caused by over a decade of underbuilding will require years of accelerated construction efforts.
Looking at the broader picture, home price growth is poised to vary significantly from one market to another. Nationwide sales are projected to increase slightly over the lows in 2023. Still, certain high-growth areas may witness double-digit increases, highlighting the uneven nature of real estate activity across regions.
As we navigate through 2024, several key takeaways emerge:
Mortgage Rates and Home Sales: The drop in mortgage rates presents a positive sign for the market, potentially leading to increased home sales. However, the lingering impact of previous high rates will continue influencing buyer decisions.
Housing Shortages Persist: Despite some increase in construction, the shortage of homes for sale is expected to persist, affecting both the housing and rental markets. Long-term solutions focused on sustained new home construction are imperative.
Varied Price Growth: Home price growth will not be uniform, with some regions experiencing significant increases while others see more modest growth. Local market dynamics will play a crucial role in shaping these variations.
Long-term Solutions Required: Addressing the housing shortage demands a strategic, long-term approach prioritizing sustained new home construction to bridge the gap created by years of underbuilding.
Rental Market Dynamics: While completing multifamily units could somewhat relieve the rental market, the impact might be limited given the existing shortages. A comprehensive strategy addressing home sales and rentals is necessary for a holistic market recovery.
As we journey through 2024, the real estate market appears set for a complex mix of slow recovery, continued challenges, and uneven growth across various regions. While falling mortgage rates and a boost in home sales offer glimpses of positivity, it is crucial to address the underlying issues of housing shortages and focus on long-term solutions for a sustainable and resilient real estate future.
