The 2023 housing market is thawing. Mortgage rates dropped to 6.64% in the week ending December 21, a significant decline from their two-decade high of 8% in October 2023. As a result, new listings were up 9% from a year ago, marking the largest annual increase since July 2021.
Supply has also increased by 2 months YoY to 4 months in December 2023. Active listings declined by 4.5% YoY from 868,355 to 830,914, the smallest decline since June.
After a cold year, the housing market seems to be catching the holiday fever. Several factors, like declining mortgage rates, increasing new listings and housing starts support the statement.
Although interest rates have eased, historically low housing supply and still-high mortgage rates continue to make housing unaffordable for many.
How is the Real Estate Market?
The housing market today is still a seller’s market.
Based on Redfin’s report, the median sale price rose from $348,349 to $363,628 in December YoY. It is the biggest increase since October 2022. Home prices are increasing because historically high mortgage rates impacted median sale prices last year. Also, this year’s supply are at a 13-year low. Making it a competitive environment.
Inventory and demand determine prices in any market. Here’s what to expect from each.
1. Housing Inventory
Today, the housing supply is 4 months. A supply of 6 months is considered balanced.
Active listings, or the total supply of homes, grew 3.9% monthly from 1,445,434 to 1,504,094. It is the biggest increase since July 2022. Total existing-home sales increased by 0.8% from 3.79 million in October to a seasonally adjusted annual rate of 3.82 million in November. But YoY, sales fell 7.3% down from 4.12 million in Nov. 2022 to 3.82 million in Nov. 2023.
Home sales will likely bottom out in 2023 and improve slightly in 2024. “We foresee 5.5 million combined new and existing home sales in 2024, up from 4.8 million in 2023,” says Lawrence Yun, Chief Economist at NAR.
2. Demand
Today, buyer demand is decreasing but still much higher than housing supply.
One of the key indicators is increasing median sale prices. As of December 17th, the median sale prices are up by 4.2% YoY at $363,628. This is the biggest increase since October 2022. Mortgage-purchase applications are also up 18% from their November low. Experts predict an increase in home prices of 2-4% due to ongoing inventory shortages in the first quarter.
When Will the Housing Market Recover?
Experts predict a housing market recovery by 2025. According to Keith Gumbinger, Vice President of mortgage website HSH.com identifies two facilitators for a potential recovery.
- Increased inventory: More homes on the market could ease price pressure, stabilizing or lowering them from current highs.
- Gradual rate decline: Rapid drops in interest rates could lead to another inventory shortage and price swings. A steady decrease, allowing buyers more breathing room, is preferable.
A balanced increase in inventory and a gradual decline in rates should pave the way for a measured recovery of the housing market.
Real Estate Market Trends
- Average Home Prices: The average median home price in America is $408,732, up 3.7% YoY. Home prices are continuing to rise for the 5th consecutive month. In the last week of December, it touched the highest YoY increase due to the limited inventory and because prices were falling faster last year.
- Home Sales: As per November 2023 data, home sales dropped by 7.4% YoY! The smallest decline since June 2022. Active listings increased by 3.1% YoY, and new listings increased by 3%.
- Average Rent Prices: Rental costs vary nationwide. An average tenant pays around $1,702, a 3.3% increase in November compared to an 8.4% annual growth in 2022.
- Median Days on Market: The median days on the market for homes for sale was 36 days, just down by 1 day YoY.
- Months of Supply: The average month of supply is 4 months.
Housing Market Predictions 2024
Americans have survived the shockwaves of skyrocketing mortgage rates and rising home prices in 2023. Here’s what we forecast for the real estate housing market:
- Home Sellers Will Return to the Market in 2024: While home sales were down throughout 2023, a positive shift is anticipated in 2024. After a five-month decline, existing home sales rebounded in November 2023, reaching 3.82 million from 3.72 million. This upturn is largely due to the decrease in mortgage rates. NAR predicts a 15% surge in home sales next year, while Redfin and CoreLogic foresee a moderate increase.
- Mortgage Interest Rates Will Stabilize by the 2nd Half of 2024: Mortgage rates will continue downward in 2024, providing some relief to homebuyers. As of Dec. 28, 30-year fixed-rate mortgage rates averaged 6.61%, down from 6.67% a week earlier. It has declined each week since hitting a 22-year high in late October, dropping 1.18 percentage points over the period.
- The Number of Home Buyers Will Rise: Historical high-interest rates have discouraged buyers in 2023. But mortgage demand rose after the interest rates lowered to 6.64% in December. The easing inflation and stabilizing rates will bring back house hunters.
- Home Prices Will Continue to Rise: NAR expects a 3-4% increase due to continued strong demand and limited inventory. However, experts predict stability rather than huge surges. Redfin agrees, saying low rates won’t bring many sellers to market, keeping supply limited. Prices will hold steady or inch upward, but not drastically.
- iBuyers Will Continue to Make Lowball Offers: iBuyers offered home sellers around 104.1% of market value in 2021 for their homes. They offered 86% in 2022 and 70% in 2023. Opendoor and Offerpad lost billions in 2023. iBuyers will make lowball offers, as they struggle to survive.
What to expect in Q1 2024
Q1 promises to be more affordable for buyers. Despite lower rates, finding a suitable home will still be difficult.
- Slower start: Q1 is usually slow but low inventory and relatively high mortgage rates have made it worse. Expect low inventory until February, then a gradual ramp-up.
- Mortgage rate drop: Rates are likely to fall further, boosting buyer confidence.
- Steady sales: Home sales may rebound slightly in 2024 after last year’s dip. Also, homes will likely sell quickly, most within 25 days.
- Price stability: Home prices are unlikely to drop due to the housing shortage. In fact, expect a 2-4% nationwide increase in Q1.
- Tight Inventory: The lack of available homes remains a hurdle. While existing home supply might not pick up much, some expect a small increase in new construction inventory.
When Will the Housing Market Crash?
You can put your worries about the housing market crashing in 2024 to rest. Prices won’t drop substantially in 2024, and they may even rise. NAR predicts a 2.6% increase in August 2024.
The evidence suggests that markets will not crash due to increasing home prices and affordability limits.
Five Reasons a Housing Market Crash Is Unlikely
Here are five reasons why a housing crash is unlikely.
- Low inventory: In December, Redfin reported a 4-month supply of homes for sale, compared to an even scarcer 2-month supply in December 2022. This persistent inventory shortage forces buyers to bid aggressively for homes, preventing a possible price crash.
- Lack of Newly Constructed Housing Supply : After the 2008 crash, builders slowed down and hadn’t caught up with how many houses they made before. They’re trying to build more now, but it’s difficult to find land and get permission quickly. Unlike 15 years ago, they can’t build a lot of houses quickly.
- Several New Buyers: Millennials and Hispanics who want to become homeowners continue to create plenty of interest in purchasing a home.
- Strict Lending Standards: Stringent lending standards safeguard against a repeat of the lax practices leading up to the 2007 crash. Presently, lenders enforce tough criteria, and new mortgage borrowers boast excellent credit scores, with a median score of 770 in the third quarter of 2023.
- Muted Foreclosure Activity: Foreclosures are likely to rise by 2024 but the numbers won’t be as high as they were in 2010. They were 6% higher YoY in October 2023. Foreclosure repossessions rose 67% in 2022 compared to 2021. However, they were still down 70% compared to 2019, and down 96% from peak foreclosures in 2010. Most homeowners possess a comfortable equity cushion, and lenders refrained from filing default notices during the pandemic’s peak.
2024: Is it a Buyer’s or Seller’s Market?
2024 will be a terrific market for sellers. (And buyers, too!)
Home prices in America are up by 4.2% and will continue to rise until the supply-demand dynamic changes. The number of houses for sale in the country was 1,487,004 in September 2023. This is close to the 1.4M homes sold in the summer of 2023. This is regarded as the best time to sell a house.
In December, the mortgage rate plummeted from a two-decade-high 8% to 6.64%, adding more new listings to the market by 9.4%. It is the largest increase since July 2021. People who refused to sell due to mortgage rate locks are now adjusting to 7%.
Come Spring 2024, more homeowners will follow suit and list properties on the MLS.
The increase in existing home listings has also brought home buyers back from the sidelines. The recent 18% uptick in mortgage applications from their early-November low shows buyers are back. House hunters who could not find affordable homes in 2023 will also start shopping in 2024.
Demand for houses will increase – and that’s why sellers may dominate the market. However, newly constructed homes will compete for attention from buyers. Home builders have persuaded buyers to buy new construction homes with mortgage buydowns worth $30K in 2023! Builders will continue to offer concessions in 2024, and home sellers may have to wage war against them.
Listings of new construction, baby boomers looking to downsize, and desperate home sellers will flood the market in 2024. The properties for sale will increase. So, whether you are looking for a condo in Florida or a single-family primary home in New Jersey, you will find your dream home next spring.
Housing Market 2023
Disclaimer: The views and opinions expressed herein are those of the author and do not necessarily reflect the views of Houzeo Corp., its affiliates, or its employees. The information set forth herein has been obtained or derived from sources believed by the author to be reliable. However, the author does not make any representation or warranty, express or implied, as to the information’s accuracy or completeness, nor does the author recommend that the attached information serve as the basis of any investment decision and it has been provided to you solely for informational purposes only and does not constitute an offer or solicitation of an offer, or any advice or recommendation.
Frequently Asked Questions
What are the housing market predictions for 2024?
Sellers will dominate the market in 2024. Mortgage rates are anticipated to decline, reaching around 6.7% by the end of the year. Home prices are expected to remain stable, with a 3-4% YoY increase. The new construction sector is likely to rebound due to falling mortgage rates, with a notable 15% increase in housing starts.
Q1 of 2024 is expected to be more affordable for buyers, with a drop in mortgage rates and steady sales. Inventory levels are likely to remain low.
How is the housing market right now?
Currently, the housing market remains a seller's market with a 4-month supply. Median sale prices, up 4.2%, reflect robust demand. Despite an 18% rise in mortgage applications, affordability challenges persist. A historically low housing inventory makes homeownership difficult for many, especially first-time buyers.
Should I Buy or Sell My House Now?
The decision to buy or sell depends on your goals. In the current seller's market, selling may yield favorable returns with prices up 4.2%. Buyers may benefit from a 15% projected surge in home sales and declining mortgage rates. Consider your priorities and market conditions before deciding.
What will happen if the housing market crashes?
If the housing market crashes, it could lead to a decline in home prices and property values, impacting homeowners' equity. Buyers may find opportunities, but economic instability and potential financial losses could affect overall market confidence and investment.
However, factors like low inventories, sustained demand, and stringent lending requirements make a crash less likely. Diversifying investments and staying informed are key during market fluctuations.
Will home prices go down?
No, home prices are expected to remain stable with a projected 3-4% year-over-year increase. It is unlikely that there will be a significant decrease. Factors like sustained demand, limited new construction, and low housing supply contribute to this outlook.
