The 2024 Forecast
Housing starts to thaw.
After reaching a record peak in May 2022, home values dropped through December, seven straight months of dropping
prices. Yet, the inventory of available homes sank to start the year as rates dropped from their end-of-the-year 2022
highs. Home affordability improved slightly as the scarcity of homes available dropped to problematic, low levels,
especially in the lower price ranges. The muted supply overshadowed the affordability predicament, and home values
rose throughout 2023, surpassing the May 2022 height. The Federal Reserve raised the Federal Funds Rate from 0 to
4.5% in 2022 and hiked it to 5.5% in 2023. Inflation eased from 6.4% in December 2022 to 3.1% in November 2023.
Inflation is trending down, and at this point, the Federal Funds Rate appears too restrictive; thus, the FED indicates that
the rate will need to be cut several times next year, or they risk slowing the economy too much and potentially causing a
recession. Thus far, the United States economy has been resilient, backed by a very strong labor market, sky-high job
openings, low unemployment, and increasing consumer spending. Yet, storm clouds are gathering as consumer savings
rates are at their lowest levels since 2009, excess savings from pandemic stimulus checks are running dry, and credit
card debt has risen sharply. As a result, the economy is poised to cool. Mortgage rates drop with a subdued economy.
This will result in a hotter housing market. When will housing heat up next year? It depends on when the economy cools.
The forecast has three different scenarios: it cools during the spring, summer, or fall.
Scenario 1 – Economy Cools During the Spring (50% chance)
Interest Rates – Look for mortgage rates to drop to between 6% and 6.5% when the economy cools and inflation
continues to ease. As the U.S. economy weakens yet does not slip into a deep recession, expect rates to fall
below 6.5% and below 6% during the year's second half.
Active Inventory – after starting the year with less than 6,700 homes, the second lowest start to a year since
tracking began in 2012, only behind 2022, the inventory crisis will continue. It will reach a low peak of only 8,500
homes during the summer, well below the over 13,900 home peak average before COVID. As mortgage rates
improve, the “Hunkering Down” effect, where homeowners opt to stay in their homes due to their underlying fixed
low mortgage rates, will diminish. More homes will enter the fray starting in the spring.
Demand – buyer demand will pick up substantially during the Spring Market. As rates remain below 6.5% with
duration, the housing market will heat up, similar to the COVID years between 2020 and the first half of 2022, due
to increased affordability. Multiple offers and bidding wars will prevail and buyers will be willing to stretch in price
to secure a home.
Closed Sales - the number of successful closed sales will increase by 14% to 20% compared to 2022, with
around 50,000 total.
Home Values - home values will rise between 4% to 7% for the year.
Scenario 2 – Economy Cools During the Summer (45% chance)
Interest Rates – mortgage rates will bump between 6.5% and 7.5% for the first five months of the year until the
economy noticeably cools during the summer. From there, look for mortgage rates to drop to between 6% and
6.5% when the economy cools and inflation eases. As the U.S. economy weakens yet does not slip into a deep
recession, expect rates to fall below 6.5% and below 6% at the end of the year.
Active Inventory – after starting the year with less than 6,700 homes, the second lowest start to a year since
tracking began in 2012, only behind 2022, the inventory crisis will continue. It will reach a low peak of only 9,750
homes during the summer, well below the over 13,900 home peak average before COVID. As mortgage rates
improve, the “Hunkering Down” effect, where homeowners opt to stay in their homes due to their underlying fixed
low mortgage rates, will diminish. More homes will enter the fray starting in the summer.
Demand – buyer demand will be sluggish during the Spring Market as rates bounce between 6.5% and 7.5%. It
will pick up substantially during the Summer Market when rates drop. As rates remain below 6.5% with duration,
the housing market will heat up, similar to the COVID years between 2020 and the first half of 2022, due to
increased affordability. Multiple offers and bidding wars will prevail and buyers will be willing to stretch in price to
secure a home.
Closed Sales - the number of successful closed sales will increase by 10% to 15% compared to 2022, with
around 48,000 total.
Home Values - home values will rise between 1% to 4% for the year.
Scenario 3 – Economy Cools During the Fall (5% chance)
Interest Rates – mortgage rates will bump between 6.5% and 7.5% for the first eight months of the year until the
economy noticeably cools during the autumn. From there, look for mortgage rates to drop to between 6% and
6.5% with a cooler economy and easing inflation. Mortgage rates will remain above 6% for the year.
Active Inventory– after starting the year with less than 6,700 homes, the second lowest start to a year since
tracking began in 2012, only behind 2022, the inventory crisis will continue. It will reach a low peak of only 10,500
homes during the summer, well below the over 7,000 home peak average before COVID. As mortgage rates
improve, the “Hunkering Down” effect, where homeowners opt to stay in their homes due to their underlying fixed
low mortgage rates, will diminish. More homes will enter the fray starting in the autumn.
Demand – buyer demand will be sluggish during the Spring and Summer Markets as rates bounce between 6.5%
and 7.5%. It will pick up during the Autumn Market when rates drop. As rates remain below 6.5% with duration,
the housing market will heat up due to increased affordability. Multiple offers and bidding wars will prevail. Buyers
will not be willing to stretch much above the purchase price all year.
Closed Sales - the number of successful closed sales will increase by 7% to 11% compared to 2022, with around
47,000 total.
Home Values - home values will drop between 0% to 3% for the year.
Additionally, the housing market will follow a typical housing cycle. Spring is the strongest in terms of demand, followed by
the Summer Market, then the Autumn Market, and finally the Holiday Market. Luxury housing will be sluggish and will
continue to transition to normal, longer market times, often taking months to procure a sale. The Spring Market will be the
strongest for luxury and become sluggish and susceptible to Wall Street volatility during the year's second half. Finally, do
not expect a wave of foreclosures and short sales. Distressed properties are still far below pre-pandemic levels, and
homeowners are sitting on mountains of equity.
The bottom line is that the economy will cool sometime in 2024. When that occurs, rates will drop, and the housing market
will heat up. No matter what, there will be more homeowners opting to sell their homes, pending sales will increase and
surpass 2023 levels, and there will be more closed sales. How hot the housing market gets in 2024 depends upon when
the overall economy downshifts.
