Home prices will continue to rise in 2024, despite predictions that they will fall. What's the reason? Tight inventory.
WASHINGTON – Unfortunately for prospective homebuyers, real estate prices continue to rise. Even the highest mortgage rates in nearly 23 years can't seem to stop the continued rise in home prices.
Prices rose again in December, with the median existing home price up 4.4% from last year, the sixth straight month of year-over-year increases, according to the National Association of Realtors (NAR). In another reflection of the continued rise, the latest S&P CoreLogic Case Shiller Home Price Index rose 4.8% in October, marking the ninth consecutive month of increases.
So much for the idea that a “housing recession” will reverse some of the massive increases in home prices. The US housing market finally began to slow in late 2022, and home prices appeared poised for a correction. But something strange happened on the way to the housing market crash. Home values started rising again.
Median sales prices for existing homes are near all-time highs, according to NAR data. The December 2023 median price of $382,600 is below the all-time high of $413,800, but not by much, especially for a quiet time of year. (Seasonal fluctuations in home prices make June the most expensive month in most years. The all-time high was reached in June 2022.) “The housing recession is essentially over,” NAR says. said Lawrence Yun, chief economist.
Home values remained stable even as mortgage rates rose to 8% in October 2023, the highest level in more than 23 years. (It has since fallen again, falling below 7% in recent weeks.) The main culprit is a lack of housing supply. Inventories remain frustratingly tight, with NAR's December data showing only 3.2 months' supply.
“Home prices are not going to go down,” said Rick Albiero, head of mortgage company New American Funding. “We just don't have enough stock.”
Skylar Olsen, chief economist at Zillow, agrees about the imbalance between supply and demand. Her latest forecast predicts that home prices will continue to rise until 2024. That's welcome news for sellers, but not so good news for first-time buyers struggling to become homeowners. “We're not in a situation where things suddenly become more affordable,” Olsen says.
In fact, the trend is quite the opposite. High mortgage rates have increased the monthly financing cost of a typical home (after a 20% down payment) by 6.1% over last year, according to Realtor.com's December 2023 Housing Market Trends Report . That's $123 more in monthly payments than the buyer paid last December.
Mortgage rates fell significantly in late December, pushing up affordability. But lower mortgage rates are drawing more buyers to the market. “The potential for lower mortgage rates coincides with the peak home buying season of the year, when homes are available for purchase,” said Greg McBride, chief financial analyst at Bankrate.
Considering all this, housing economists and analysts agree that the market correction is likely to be gradual. No one expects prices to fall as much as they did during the Great Recession.
Will there be a crash? No, there are still more buyers than sellers, which means that a significant price drop cannot occur. “There's generally not enough supply,” says Mark Fleming, chief economist at title insurance company First American Financial Corporation. “There is more population than housing stock. Ecology 101.”
Dave Liniger, founder of real estate brokerage RE/MAX, said the rapid rise in mortgage rates is distorting the market. Many prospective buyers are waiting for interest rates to drop, but if mortgage rates actually drop, new buyers will flood the market and home prices could rise.
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