Today, we'll delve into my 2024 housing market forecast. I'll outline four predictions detailing why the housing sector might experience limited fluctuations in the coming twelve months. Many wonder if it's an opportune moment to venture into home buying or real estate investment. In this discussion, I aim to offer clarity on the state of the housing market. Whether you're a first-time homebuyer, a novice in investment, or a seasoned expert in real estate finance, I believe my predictions will provide valuable insights for your consideration.
Prediction #1
In Q3 2023, the median home price was still around $431,000. That equates to about a $3,200 a month mortgage. The challenge with the existing market is that over 82% of all mortgages right now have interest rates that are under 5%. We call this the lock-in effect, meaning that 82% of the market has existing houses under a 5% interest rate. They will not be willing to step out and put their house on the market, because rates are 2.5% to 3% higher than their present rate. So this, stands to reason why there's a 50% reduction in home sales in America right now. I mean, let's face it, if you have a 5% (or less) interest rate on your mortgage, you aren't going to buy something else and move to a 7.75% interest rate on your mortgage. It's just not going to happen right now. So until rates get below 5%, we will have a lot of mortgages locked in. There will not be a lot of movement until rates trend lower or homeowners decide this is the new normal and go ahead and move up into a higher rate. I personally don't see that happening in 2024. I just don't think that's going to happen to the degree that many people are anticipating. So again, what's my prediction in housing? I don't think there will be a lot of movement until interest rates move towards 5% to get out of the lock-in effect. Put your pencil down and be patient. I also don't believe there will be a lot of downward pressure on housing prices until we get past 2024. I think housing prices will vary just a little downward, maybe 5% in 2024. So, to tie a bow around the housing prediction, unless rates trend lower toward 5%, you're not going to unlock the 82% that are currently waiting and have rates under 5%.
Prediction #2
The existing shortage in the housing market's supply has significantly added to the difficulties experienced by both buyers and sellers. As demand continues to outpace available inventory, it's creating a scenario where the market struggles to meet the needs of prospective homeowners. The United States is still grappling with a significant shortage of 4 to 5 million homes. Combined with the soaring construction costs, which have risen by 25% to 30%, and the stabilizing effect of locked-in interest rates, the housing market is unlikely to witness considerable fluctuations. My prediction is, that unless there's a minor decline, housing prices won't experience much movement by 2024. My advice would be to hold off on major decisions until we observe interest rates hitting 5% or lower.
Prediction #3
The Federal Reserve aimed for a 2% inflation rate. Currently it stands at approximately 3.2%, a considerable leap from its position six months ago. However, despite this increase, it hasn't yet reached the target rate desired by the Federal Reserve. So what's really going to get us down to a 2% target? Well, the challenge with this is 40% of the CPI, which is a gauge for inflation, consists of two components: food and shelter. If the preceding information regarding housing and shelter holds true, it suggests stubborn inflation, potentially leading to resistance in the decline of food prices. Although the Fed might lower their fed fund rate 2 to 4 times during 2024, I just don't think it will meet that 2% target. I think that inflation is going to stall around 3%. So ultimately, because of these two major areas that make up the 40% (food and shelter), I anticipate that inflation will encounter significant resistance in dipping below the 3% mark in 2024, irrespective of the number of rate adjustments made. So, I am predicting an inflation rate between 2.75 and 3% for 2024.
Prediction #4
Last but not least is rent. The average monthly rent is $1,850. So here's the challenge we will be faced with for the next couple of years. We have people that can't afford to go into a new home. So they're going to stay in or migrate to the rental market. But we don't have enough supply for the needs that we have right now. Coupled with the fact because of the interest rates that we just discussed, there's no new product that will come online other than what is in the pipeline right now. So, there is an affordability crisis along with the supply problem. So presently, because of the disparity between home ownership, monthly payments of $3200 and renting at $1,950, that's basically a 50% disparity between buying and renting. Reason says that people are going to stay in the rental market. So, economically, if you can't afford to get into a new home this next year, you will go into the rental market. If you're going to go into the rental market, it's going to increase demand. You've already got a supply shortage even in the rental market and reason says rental rates should rise, if only slightly.
In Summary:
There will be minimal movement in housing prices due to persistent factors like supply shortages and escalated construction costs, leading to stabilized interest rates. Additionally, the prediction of stubborn inflation, particularly in housing and shelter costs, hints at its prolonged impact on overall inflation rates. Moreover, there's a projected challenge in driving inflation below the 3% threshold for the year, regardless of attempts made through rate adjustments. These predictions collectively paint a picture of a housing market characterized by stability and resistance to significant fluctuations in the upcoming year.
