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Good news, home buyers — expect both lower mortgage rates and home prices in 2024, which could ease the cost of homeownership, Redfin
RDFN,
says.
In its housing outlook for 2024, the real-estate brokerage said that next year would not only be “a year of change” but one where aspiring homeowners will finally be “catching a break.”
“2024 will be neither a buyers’ nor a sellers’ market, but we think that the market will be tilting in favor of buyers with lower rates, lower prices, and more inventory as sellers get tired of waiting for rates to drop,” Chen Zhao, Redfin’s economics research lead, told MarketWatch.
“The increase in supply is likely to exceed the increase in demand, creating a market more friendly for buyers than 2023,” she added.
Home prices and mortgage rates to fall in 2024, according to Redfin
The brokerage expects home prices to fall 1% on a year-over-year basis in the second and third quarter of 2024. Aside from a brief drop in the first half of this year, the decrease would be the first time prices would have fallen since 2012, Redfin added, “when the housing market was recovering from the Great Recession.”
The median price of a home sold in October 2023 was $391,800, according to the National Association of Realtors. Prices were up 3.4% from last October.
Redfin expects home prices to fall in part because it expects the “lock-in” effect to subside. The lock-in effect refers to people who don’t want to sell their current home because of their relatively low mortgage rate.
“We’ve recently seen a double-digit annual increase in homeowners contacting Redfin for help selling their home, alongside a small drop in requests from prospective buyers,” the company noted.
Some homeowners are warming up to the idea of borrowing at a rate of 7%, Redfin said, because they may not see mortgage rates fall to the 3% – 4% range any time soon. Others see an opportunity to cash out on their equity and move to a more affordable place, the company added.
Redfin’s forecast also expects mortgage rates to drop. The rate on the 30-year fixed-rate mortgage was averaging 7.22% as of Nov. 30, according to Freddie Mac. The 30-year will fall throughout the year, Redfin said, and drop to 6.6% by the end of 2024. Even though Redfin expects the U.S. Federal Reserve will keep interest rates at their current level for the time being, it’s expecting a rate cut two or three times starting in the summer, which would bring mortgage rates down, they explained.
A separate 2024 housing forecast by Realtor.com predicted that mortgage rates will drop to 6.5% by the end of 2024.
Redfin also expects home prices to fall more significantly in certain parts of the nation, such as in parts of coastal Florida. Considering the run-up in home prices in places like North Port and Cape Coral, Redfin explained, there’s a “lot of room to fall.” Additionally, there’s the rising risk of climate disasters, such as hurricanes and storm surges, which make it more expensive to own homes in such areas given the rising cost of home insurance and other associated repair and rebuilding costs.
“At the same time, affordable and climate resilient places such as Albany, N.Y., Rochester, N.Y., and Grand Rapids, Mich., could see more rapid price appreciation,” Zhao added.
Political and legal developments to watch for in 2024
Redfin also noted that buyers and sellers will be more aware of the commissions they pay to real-estate agents next year, on the back of a landmark jury verdict in 2023 which upended a decades-long arrangement. Redfin is one of the defendants named in another class-action suit by home sellers, and is accused of engaging in a price-fixing conspiracy to inflate commissions.
Instead of the home seller bearing the 5-6% fee paid to their broker, which has historically been shared between the listing agent and the buyer’s agents, the arrangement may change. “Home buyers in 2024 will become even more aware of how much an agent costs,” Redfin said, “and less apologetic about negotiating commissions.”
Buyers may also forgo working with their own agent and work directly with the listing agent, Redfin suggested.
Additionally, Redfin expects the Biden administration to focus more efforts on housing, given how rapidly affordability has deteriorated in the last year. Considering the fact that home prices are up more than 20% since the president took office, Redfin said, “high housing costs are making many Americans feel poor.”
The Biden-Harris campaign did not respond immediately to a request for comment.
“We expect President Biden and his opponents to make splashy housing policy proposals to try to lure voters who are unhappy with their economic prospects,” Redfin said.
“Democrats are likely to focus on subsidizing down payments for first-time homebuyers, promoting inclusionary zoning and funding housing vouchers, which are all popular with liberal voters,” the company added. “Republicans are more likely to focus on reducing regulations that limit development.”
