With the Federal Reserve hinting at rates cuts to come this year, hopeful homebuyers all over the country are asking the same question: Should I buy a house in 2024? Indeed, after the mess of a year 2023 was for housing, economists and would-be homebuyers are hoping the new year may bring a change of fortune for the real estate industry. In that regard, things may not be quite so clear-cut.
The two considerations most homebuyers weigh, aside from local preferences like location, size and personal budget restrictions, are price and mortgage rate.
Unfortunately for most homebuyers, the U.S. housing market is currently undergoing an affordability crisis. Despite a notable slump in housing demand, the limited supply of available homes for sale means that home prices just keep going up. With mortgage rates still high, buying a house has almost never been more financially challenging.
As of November, there was a 3.5-month supply of homes on the market, well below a balanced market’s five to six month supply. As a function of basic supply and demand, home prices have hung strong even as home sales continue to stumble. The median price for an existing home in November was $387,600, up 4% from the year prior.
“Home prices keep marching higher,” said National Association of Realtors Chief Economist Lawrence Yun. “Only a dramatic rise in supply will dampen price appreciation.”
Falling Mortgage Rates May Tempt Homebuyers
On the other side of the coin, mortgage rates — which 80% of buyers used to finance their home purchases in 2023 — are still trending around their highest level in years, despite undergoing notable improvement in the past few months.
The 30-year is currently around 6.2%, well below the near-8% peak recorded back in October, the highest level in more than two decades. Rates have eased in response to the Fed’s surprisingly dovish attitude lately. Indeed, the central bank has hinted at three or more rate cuts to come in 2024.
When the benchmark rate falls, mortgage rates will eventually follow along. Some economists even predict the 30-year will fall to about 6% flat by the end of the year.
Now, the notion of falling lending rates is bound to tempt some buyers into the housing market, perhaps reasonably so. After all, if rates end up falling even further in the future, refinancing into a lower rate is a distinct possibility.
It’s worth keeping in mind that mortgage rates and home demand operate inversely. As rates fall as they’re predicted to, the demand for homes will likely climb even higher, which will push the principle price for homes even higher.
This is all to say that, while home affordability may improve slightly as rates fall, don’t expect a buyer’s market any time soon.
Should I Buy a House in 2024?
At the end of the day, buying a home is a deeply personal, long-term decision. The fact is, while new homes are being built as a means to confront the supply challenges of the market, it’s unlikely this will result in a net drop in home prices any time soon, absent a major recession.
This also means that if buying a home is at the top of your list of goals, waiting isn’t likely to merit much in the way of a cheaper lifetime cost. Supply will still lag behind demand, meaning prices will go up almost regardless of intermediate changes in interest rates and home inventory.
“Home price appreciation can only moderate from drastically improved supply. Another 30 percent rise in home construction can easily be absorbed in the marketplace, especially in light of recent weeks’ plunge in mortgage rates,” Yun said.
Is now the right time to buy a home? Well, maybe. There may never be a “perfect” moment to enter the market. However, with mortgage rates likely to ease, 2024 seems as suitable a candidate as any to begin the home-buying process — with the understanding that, while home affordability isn’t great, it also isn’t likely to improve dramatically any time soon.
On the date of publication, Shrey Dua did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
