“Life happens.”
While economists have struggled during the past year or so to draw conclusions from the post-pandemic macro environment, Bright MLS, in its recently released predictions for the 2024 housing market, is staking its forecast on something more tangible than the shape of bond yield curves or aggregated leading indicators:
“We do know that family reasons are still the primary reason why people list their home for sale,” says Dr. Lisa Sturtevant, Bright MLS chief economist. “I think that when we head into the spring, that’s when we’re going to start to see more of the ‘life happens’ moves really impact the market.”
As 2023 comes to a close, real estate professionals are likely at least somewhat more optimistic about the new year, compared to how they felt at the end of 2022. Mortgage rates have plummeted, as the Federal Reserve appears to have finished its aggressive rate hiking campaign.
Likewise, consumers are confronting the everyday—or at least every year—occurrences, like job changes, retirements, new babies, divorces and marriages. With 3% mortgage rates fading into the past, Sturtevant and Bright say 2024 is the time that many of the hundreds of thousands of homeowners locked down by these “golden handcuffs” accept the fact they have to move.
“So in our market, in the Mid-Atlantic market…in the last three weeks, new listings have been up higher than they were a year ago,” says Sturtevant, “suggesting that there is a little bit of movement of sellers putting homes on the market that may have been holding out before. Anecdotally, we’re starting to hear that.”
Even with this boost, Bright is predicting a largely similar market to this year, with immovable home prices, slightly increased sales and continued affordability issues. But this pent-up influx of sellers should propel sales and inventory close to 2019 levels by the end of the year, the MLS predicted.
“I think we’ve just seen the tip of the iceberg,” Sturtevant claims.
The big picture
The quantitative changes don’t look quite as dramatic. Sturtevant is predicting an average of 6.2% mortgage rates, down from roughly 6.8% this year. Home sales will rise a significant 12.1%, still below pre-pandemic levels and long-term yearly averages. Housing supply will end the year at 1.3 million existing homes for sale, another modest 7.6% increase that will certainly have an impact, but not enough to alleviate the larger crisis of inventory and affordability.
But Sturtevant says to expect a tangibly improving housing environment starting in the spring, based on mortgage rates that will continue to fall.
“Our forecasts are for rates to hover around 6.5% by the spring. I think that’s going to be enough for people to…make peace with the fact that they’re going to have to give up their very low rate,” she says.
Sturtevant also explicitly disagrees with other experts who have said that rates will have to reach the 5% level before potential sellers begin exploring the market. But she adds that older folks are likely to be overrepresented in the market next year, as younger homeowners have less equity and may hold onto their rates a little longer.
Older folks also possess more valuable or desirable properties, Sturtevant claims, in good school districts in the suburbs, and it is important for them to eventually make way for the younger generation, who are continuing to seek out those single-family suburban lots.
So with more inventory and shrinking mortgage rates, could 2024 end up as a buyer’s market?
Absolutely not, says Sturtevant.
“Not even by any measure that we have,” she says. “It hasn’t been a buyer’s market since—if you use some of the standard definitions, you’d have to go back to 2012, 2013.”
But buyers will be better off than they were this year, or maybe in the past couple years, according to Sturtevant. New constructions will continue to be a major factor, and as builders offer concessions, mortgage points and various other incentives to attract buyers, exiting homeowners will have to follow suit in order to compete.
“I think it’s going to be a more balanced market, not because there’s going to be four to six months of inventory, which is how we often have to find balance, but the transaction will feel more balanced,” Sturtevant describes.
The new home surge—which Sturtevant predicts will remain relevant for at least the first half of 2024—is especially important for affordability, as new builds are now only slightly more expensive than existing homes.
But the data has been more mixed recently, with a slowdown both in permits and sales, and Sturtevant says it is unclear whether the move toward new builds will last.
Show me the money
Affordability is maybe going to be the major theme of 2024. With prices up and rates only down moderately, huge swaths of the population are still priced out of homeownership. Homes are historically unaffordable right now, and Sturtevant says there is still little chance of major relief.
“You hear all these reports when mortgage rates go up that say, ‘That adds a thousand dollars to the monthly payment compared to where we were a year ago.’ So we focus so much on the impact on mortgage rates on affordability, but there’s longer-term structural reasons why affordability is a challenge,” Sturtevant explains.
Decades of stagnating wages and inventory shortages stemming from the Great Recession are largely to blame, as people continue to struggle with basic housing costs, or finding the kinds of homes they want.
This is the kind of market that Gen Z, or the Zoomers, will soon confront—though not necessarily in 2024, Sturtevant says.
While real estate professionals continue to wait anxiously for the youngest buyers and sellers to make their presence known, Sturtevant predicts that these people in their early to mid-20s will be forced to wait on homeownership, just like millennials were.
“They’re going to be solidly the rental story for the next few years,” she says.
A huge increase in new apartment construction will draw these folks away from seeking to buy a home, Sturtevant claims, and combined with how expensive homes are, Zoomers will make the rational decision to rent as they come of age.
That doesn’t mean Gen Z won’t be looking to buy homes, though.
“I talk about this all the time,” Sturtevant says. “Each generation, we are like, ‘Oh my gosh, they’re so different than the last generation.’ And it turns out they’re not really. We hit the same milestones—sometimes we hit them later.”
In the medium-term, Sturtevant says she expects more “creativity,” as young people leverage multi-generational households, or purchase with friends rather than taking a traditional path to homeownership. Those types of housing arrangements could end up—for better or worse—as a new normal going forward.
“I do think the main reason why Gen Zs will wait to buy a home is not because they don’t want to buy a home. It’s because they can’t buy a home,” she says.
