The housing market’s headline this year has been the affordability challenge brought on by mortgage rates reaching 20-year highs. Looking ahead to 2024, Zillow® predicts home buyers will have a bit more breathing room — but only a bit.
Buying a home will remain expensive, keeping pressure on the rental market to cater to families that will be renting for longer than previous generations. Many who buy will turn to homes that need some work, according to Zillow’s predictions, and do-it-yourself upgrades and repairs will keep new homeowners busy.
“I expect the beginning of a long healing process to kick off in the housing market next year,” said Skylar Olsen, chief economist for Zillow. “We know there are a huge number of households in prime home-buying ages waiting for the winds to turn in their favor. While still presenting challenges, the market will be better for buyers, with more homes to choose from and improved affordability. Many will continue to look toward rentals, and given renter demographics single-family rental demand in particular will be strong. Recent deliveries should keep rent growth down, and concessions high in that market, too. This is our breather year.”
More homes will hit the market as homeowners accept that current mortgage rates are sticking around
“Higher for longer” is the key refrain regarding mortgage rates as Zillow economists look ahead to the next year in housing. It’s becoming clear that high mortgage rates have some staying power. Zillow economists expect more homeowners who locked in long-term payments when rates were near all-time lows to list their homes for sale, as they grow weary of waiting for the historically low rates of 2021 to return.
A very small pool of homes for sale has kept competition fairly stiff for most of this year, even with high costs limiting the number of shoppers. With mortgage rates rising over the past two years, homeowners have been reluctant to sell, opting instead to hold onto the ultralow interest rate on their current mortgage. Many of those homeowners will have their eye on a home with a bigger backyard, an extra bedroom or in their preferred neighborhood across town, and Zillow predicts more of these homeowners will end their holdout for lower rates and go ahead with those moves.
Home-buying costs will level off, giving hopeful buyers a chance to catch up
A typical home buyer in October would have spent more than 40 percent of their earnings on their mortgage payment — an all-time high according to Zillow data, which stretches back to the 1990s. While affordability will undoubtedly remain the top concern for potential home buyers in 2024, there is reason to expect those challenges to ease just a bit.
Zillow’s latest forecast calls for home values to hold steady in 2024. Predicting how mortgage rates will move is a nearly impossible task, but recent inflation news gives the impression that rates are likely to hold fairly steady as well in the coming months.
The cost of buying a home looks likely to level off next year, with the possibility of costs falling if mortgage rates do. That would give time for wages and buyers’ savings to grow — welcome news after the rapid rise in housing costs over the past two years.
Traditional home buyers will compete with flippers for homes that need a little TLC
Typically the target of home flippers, homes that need a little work before they qualify for “dream home” status will see increased interest from buyers looking to move in.
Inventory has been far below normal for a while, and though Zillow economists predict more homes will hit the market in 2024, inventory will remain much lower than pre-pandemic norms. Faced with limited choices, buyers will be willing to overlook small flaws, such as an outdated bathroom or kitchen.
The higher cost of buying a home today makes a flip harder to pencil out, so buyers may face less competition from flippers than they might have in previous years. Even with less chance of being subject to a bidding war, these homes won’t come cheap, so expect buyers to frequent their local hardware stores as they work on DIY home improvements.