Will home prices drop in 2024? This is a question on the minds of many potential homebuyers and investors. As we navigate the ever-changing landscape of the real estate market, it’s crucial to understand the factors influencing home prices and what the experts predict for the future.
Overview of the 2024 Housing Market
In the first half of 2024, home prices have continued to climb, with mortgage rates hovering near 20-year highs and housing inventory remaining tight. According to Zillow, the average home value rose 3.8% year over year to $363,438 in June 2024. Despite the challenging conditions, the outlook for the latter half of the year shows signs of improvement.
Key Trends Shaping the Market
Economic Factors
According to Business Insider, the Consumer Price Index (CPI), a key measure of inflation, peaked at 9.1% in June 2022. This prompted the Federal Reserve to raise the federal funds rate aggressively to combat inflation. As inflation cooled, rising just 3.0% year over year in June 2024, the Fed is expected to start lowering its benchmark rate later this year, which could positively impact mortgage rates and home prices.
Mortgage Rates
Though mortgage rates have been trending down, they remain higher than the historical average. From 2010 to 2020, the average 30-year mortgage rate was 4.09%, dropping to an all-time low of 2.65% in January 2021. The recent high rates have kept many potential buyers out of the market, moderating the pace of home price increases. However, the lock-in effect, where homeowners with low-rate mortgages are reluctant to sell, has constrained housing supply and prevented prices from falling.
Housing Supply and Demand
The U.S. housing supply remains chronically low, contributing to rising home prices. Analysts believe that the lack of supply has driven dramatic price increases over the past few years. Freddie Mac estimated a 3.8 million unit shortfall in a healthy housing supply, particularly in entry-level homes. The construction industry is still recovering from the Great Recession, which destroyed around 75% of the housing supply chain.
Predictions for 2024
Will home prices drop in 2024? Most major forecasts predict that home prices will continue to rise, albeit at a slower pace. Fannie Mae expects a 6.1% increase, the National Association of Realtors forecasts a 3.8% rise, and the Mortgage Bankers Association predicts a 4.5% increase by the end of 2024. Looking further ahead, these organizations expect continued price growth in 2025.
Local Housing Market Forecasts
While national trends indicate rising home prices, local markets may vary. For instance, home prices in Austin, Texas, have declined since peaking in mid-2022 and are down 4.3% year over year. Local market conditions can differ significantly, so it’s essential to research specific areas when considering buying or selling a home.
Is It a Good Time to Buy a House?
So, will home prices drop enough to make it a good time to buy? According to Doug Duncan, Fannie Mae’s senior vice president and chief economist, if it fits your budget, now is as good a time as any to buy a house. Waiting for mortgage rates to drop could lead to even higher home prices due to increased competition. Some lenders offer “buy now, refinance later” deals to help buyers manage high initial mortgage rates.
Will home prices drop in 2024?
Most experts agree that a significant drop in home prices is unlikely. However, improving economic conditions and lower mortgage rates may create a more favorable environment for buyers in the coming months. As always, staying informed and consulting with local real estate professionals will help you make the best decision for your situation.
