2023 has come to the end with a positive outlook. The Fed paused rates for two consecutive months, unemployment is low, GDP growth has been on the up, mortgage rates have been going down, and so on. The question on everyone’s minds is: will this positive trend continue in 2024?
LendingTree’s latest report, penned by Senior Economist Jacob Channel, takes a look at their predictions on the state of housing and the economy in 2024 based on data and trends in 2023.
Key highlights:
- The housing market likely won’t crash this year. Even if lower rates help spur more enthusiasm for homebuying this year, demand will remain relatively low. As a result, the housing market will continue to move sluggishly, especially compared to 2020 and 2021. Fortunately, that doesn’t mean we’re headed for a 2008-style crash. The housing market’s strong fundamentals—like the nation’s low mortgage delinquency rate—will likely help us avoid a major downturn.
- Inflation will likely come down. As we move through 2024, continued pressure from relatively high rates and a generally cooling economy should help bring inflation back down to more manageable levels. If all goes well, we could see a return to the Fed’s target annual growth of 2% in 2025.
- Across the board, rates should level off, if not eventually fall. Even if the Fed doesn’t start cutting its benchmark rate until later this year, rates on products not directly tied to the Fed’s actions, like mortgages, could fall. If this happens, housing should get more affordable, even if home prices increase slightly in some areas.
- Wage growth will continue to outpace inflation. Believe it or not, wage growth outpaced inflation growth for most of 2023. This trend appears poised to continue this year as inflation comes down. However, because inflation was so hot in 2022, it’ll take more time before higher wages offset how much higher prices are now compared to where they were before the pandemic.
- We may avoid a recession. In light of robust GDP growth in Q3 2023 and continued resilience by consumers, the economy doesn’t look as though it’s about to start outright shrinking. Making it through 2024 without a recession will make life easier for most households, as they won’t have to worry as much about losing their job or forgoing an annual pay raise.
- The housing market will remain prohibitively expensive for many. Even if home prices stay where they are now—or fall slightly—while rates drop, that doesn’t mean housing will become affordable for everyone. Especially for lower-income borrowers, the lower rates we may see this year won’t be enough to offset how pricey real estate has become since the start of the pandemic.
- Home sellers could face challenges. Not only is homebuyer demand down, but many would-be sellers are doubtlessly struggling to part with their homes and the sub-5% rate their current mortgage is likely to carry. Lower rates in 2024 may help homeowners feel more comfortable listing their homes, but they shouldn’t expect selling to be as easy as it was during the height of the pandemic.
- Savings will stay depressed. Savings highs from the pandemic have fallen significantly in the face of high inflation and rates. Lower rates and cooling inflation in 2024 may give people more opportunities to save, but—generally speaking—most people are unlikely to see their savings rise back to anywhere near where they were in 2020 or 2021.
- Total debt will stay high. U.S. households are sitting on more than $17 trillion worth of household debt. While the lower rates that 2024 may bring should help make some of it more manageable, this debt isn’t going to go away anytime soon. Higher debt could dampen consumer spending this year, or otherwise make it harder for Americans to budget their finances.
Major takeaway:
“While there are no guarantees, 2024’s economy is currently shaping up to be better than some might’ve initially feared,” said Channel. Not everything is going to go amazingly well, and even if the broader economy does okay, that doesn’t mean that every individual’s financial troubles will disappear. Nonetheless, many those expecting 2024 to be nothing but weeping and gnashing of teeth will probably be pleasantly surprised.”
For the full report, click here.
