The Future of the Housing Market to Watch Out for This Year

The Future of the Housing Market: What to Watch Out for This Year

As we navigate the complexities of the housing market in 2024, several key factors are shaping the landscape, influencing everything from home prices and mortgage rates to buyer behavior and market trends. Here’s a comprehensive look at what you need to know.

Home Price Predictions: A Mixed Bag

Home prices have been a significant focus for both buyers and sellers, and the forecasts for 2024 and beyond are varied but generally positive.

Also read : The Future of the Housing Market in the UK in 2024

  • Zillow's Forecast: Zillow anticipates home values to increase by 2.1% in 2024, a slight uptick from previous projections. For the 12 months ending June 2025, they expect a 1% growth, indicating a modest but steady appreciation.
  • National Association of Realtors: The NAR predicts existing-home prices will rise by 3.8% by the end of 2024 and by 2% in 2025. This suggests a continued but slowing growth in home prices.
  • Fannie Mae and MBA: Fannie Mae sees home prices rising 6.1% in 2024 and 3% in 2025, while the Mortgage Bankers Association forecasts a 3.9% increase in 2024 and 2.7% in 2025.

Here is a comparative table of these predictions:

Organization 2024 Price Growth 2025 Price Growth
Zillow 2.1% 1%
National Association of Realtors 3.8% 2%
Fannie Mae 6.1% 3%
Mortgage Bankers Association 3.9% 2.7%

Mortgage Rates: A Key Influencer

Mortgage rates have been a crucial factor in the housing market, and recent trends suggest some relief for buyers.

Also to see : The Impact of Interest Rates on Real Estate to Watch Out for This Year

  • Current Trends: Mortgage rates have dropped significantly, with 30-year rates falling below 6% for the first time since early 2023. This drop is attributed to the Federal Reserve's decision to lower the federal funds rate, which has helped in reducing mortgage rates.
  • Future Outlook: Experts predict that mortgage rates will continue to decline in 2025, improving affordability for borrowers. However, the extent of this decline is uncertain and will depend on future economic conditions and Fed policies.

Housing Inventory: A Persistent Challenge

The housing inventory has been a significant challenge for buyers, with supply remaining below pre-pandemic levels.

  • Current State: Despite an increase in new home construction, the inventory remains 33% lower than pre-pandemic averages. Many homeowners are "locked in" at ultra-low mortgage rates, making them reluctant to sell and move to a higher-rate mortgage.
  • Future Prospects: As mortgage rates continue to trend downward, this could loosen the "lock-in" effect and add more inventory to the market. However, the severe deficit in housing supply is likely to persist for some time.

Key Factors Influencing the Housing Market

Several macroeconomic and demographic factors are influencing the housing market.

The Economy and Federal Reserve Policy

The Federal Reserve's actions have significantly impacted the housing market. With inflation slowing down, the Fed has started lowering its benchmark rate, which in turn has affected mortgage rates.

  • Inflation: The consumer price index rose just 2.5% year over year in August 2024, down from the 9.1% peak in June 2022. This deceleration in inflation has led to lower mortgage rates.
  • Fed Actions: The Fed's decision to cut the federal funds rate by 50 basis points in September and potential further cuts this year are expected to keep mortgage rates stable or lower.

Demographic Shifts

Demographic changes are also shaping the housing market.

  • "Silver Tsunami": The aging population, particularly baby boomers, is expected to impact the market as they age out of their homes. This could add new housing supply, easing competition and allowing prices to rise at a more moderate pace.
  • Millennials and Gen Z: These generations are becoming the dominant buying forces, with preferences shifting towards sustainability, affordability, and more space. This is driving demand for certain types of properties, such as eco-friendly homes and multifamily units.

Types of Properties Expected to Soar in Value

Certain categories of properties are anticipated to see significant growth in value.

  • Historic and Distinctive Homes: These homes, especially in centrally-located areas, are expected to rise in value due to their scarcity and growing demand.
  • Multifamily Units: Properties near urban centers and transport hubs are likely to see continued appreciation driven by high demand and robust fundamentals.
  • Eco-Friendly Homes: The shift towards sustainability is driving demand for eco-friendly homes and sustainable materials, particularly among younger buyers.
  • Manufactured and Modular Smart Homes: These energy-efficient and customizable properties are gaining popularity, contributing to their expected value increase.

Here is a detailed list of the types of properties expected to appreciate in value:

  • Historic and Distinctive Homes: Scarcity and growing demand in centrally-located areas.
  • Multifamily Units: High demand and robust fundamentals near urban centers and transport hubs.
  • Eco-Friendly Homes: Growing demand for sustainable materials and energy-efficient properties.
  • Manufactured and Modular Smart Homes: Increasing demand for customizable and energy-efficient homes.
  • Assisted Living Facilities: Significant growth in property values due to high demand in retirement destinations.
  • Furnished Apartments and Condos: Rising demand for move-in-ready properties.
  • Properties with Accessory Dwelling Units (ADUs): Additional income streams through rentals.
  • Starter Homes: High value due to increasing demand and limited availability.

Practical Insights and Actionable Advice

For those considering entering the housing market, here are some practical insights and advice:

Timing Your Purchase

  • Current Market Conditions: With mortgage rates trending downward and inventory slowly increasing, 2024 might be a good time to buy. However, it's crucial to time your purchase based on your current life circumstances rather than waiting for the perfect opportunity.

Affordability

  • Mortgage Rates: Lower mortgage rates can significantly improve affordability. Keep an eye on Fed policies and economic conditions that might affect these rates.
  • Income Growth: If real incomes rise faster than inflation, this could boost affordability and home sales.

Property Selection

  • Sustainable and Eco-Friendly: Consider properties that align with the growing trend towards sustainability. These properties are likely to appreciate in value over time.
  • Location: Properties in centrally-located areas or near urban centers and transport hubs tend to have higher demand and appreciation potential.

Quotes from Experts

Here are some insightful quotes from experts in the field:

  • Lisa Sturtevant, Chief Economist at Bright MLS: "The upward pressure on home prices is making this the most unaffordable housing market in history."
  • Rick Sharga, Founder and CEO of CJ Patrick Company: "I don’t expect to see a meaningful increase in the supply of existing homes for sale until mortgage rates are back down in the low 5% range, so probably not in 2024."
  • Orphe Divounguy, Senior Macroeconomist at Zillow Home Loans: "In 2024, I expect we’ll see home appreciation take a step back but not plummet."

The housing market in 2024 is characterized by modest price growth, declining mortgage rates, and a persistent inventory shortage. As we look ahead, it's clear that several factors will continue to shape the market, including economic policies, demographic shifts, and changing buyer preferences.

For potential buyers, this year may present a good opportunity to enter the market, especially with improving affordability due to lower mortgage rates. However, it's essential to stay informed about the latest trends and forecasts to make the best decisions.

Whether you're a seasoned homeowner or a first-time buyer, understanding the nuances of the housing market can help you navigate this complex and dynamic landscape with confidence.