2023’s housing market ended with a whimper. There were just over four million existing home sales nationwide last year, the fewest since 1995. Elevated mortgage rates and high home prices forced some prospective buyers to exit the market. However, a lack of inventory continues to be the biggest constraint on the market. Existing homeowners have been reticent to sell, understandably wanting to hold onto their sub-3% mortgage rates.
Mortgage rates will likely remain above 6% for much of this year, and home prices should be firm, but we expect there will be more sales than last year. There is still significant pent-up demand from both first-time and move-up/move-down buyers. Homeowners who have been on the sidelines will find that changing family and financial circumstances will motivate them to sell. For some families, these “life happens” events will outweigh the desire to hang onto a lower mortgage rate.
The five Ds of residential real estate
To see where buyers and sellers are coming from in 2024, pay attention to the five Ds: diamonds, diapers, divorce, downsizing and death.
The five Ds are a shorthand way to talk about how important key life milestones are to driving the decision to buy or sell a home. With all the focus on mortgage rates and the Fed, it’s easy to forget that demographics are the foundation of housing demand and supply. Over the course of someone’s life story, there are predictable milestones that precipitate moves.
Getting married (diamonds) and having children (diapers) are typically events that lead to buying a home. Young adults are getting married and having children later than earlier generations, and more young adults are choosing to live together rather than get married. However, it remains true that getting married and having children are still going to be key reasons people buy homes in 2024.
While forming or growing a household are the main reasons for moving, dissolving or shrinking a household are also key events that bring buyers and sellers into the market. Downsizing is tricky in this market with limited inventory, but more empty nesters will be in the market in 2024, moving for retirement, listing their family-sized homes and often trying to find something smaller.
Death is the ultimate milestone in the home-buying and home-selling journey. Recent survey research from Bright MLS finds that an owner passing away is one of the most common sources of new listings coming onto the market in 2024.
Defining the new normal
The pace of buying and selling will pick up in 2024, largely driven by the five Ds of the market. It may still not feel like a “normal” year, but we may need to rethink what a “normal” market looks like. Over the next few years, the housing market will still have more buyers than sellers. Homes will still sell quickly, and buyers will still face competition as the housing market is still in a transition following the disruption caused by the COVID-19 pandemic. What is true, however, is that demographics and life events will always be critical to the performance of the housing market.
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