After two straight years of double-digit declines, home sales will pick up in 2024 thanks to lower mortgage rates. This is according to NAR Chief Economist Lawrence Yun, who shared a presentation of his 2024 forecast on Tuesday.
While the past two years have been challenging to say the least for prospective homebuyers, homeowners have been reaping the fruits of their investments, as home prices steadily appreciated for the past three years.
Once the December data for existing home sales is tallied up, 2023 could be the worst year for existing home sales seen since 2008 or since 1995, Yun said during his presentation.
Meanwhile, new home sales performed exceptionally well in 2023, making it the third or fourth-best year for new home sales since 2008.
On Wednesday, the Federal Open Markets Committee (FOMC) held its short-term policy interest rate steady at a range of 5.25% to 5.5%. Additionally, Federal Reserve Chairman Jerome Powell announced that the Fed anticipates making three 25 basis point rate cuts in 2024, a sign that a new phase in monetary policy is approaching.
Yun expects the first rate cut to come in the late spring of 2024. He forecasts mortgage rates to come down to the mid-6% range, for an average of 6.3% in 2024. Different factors will help bring rates down. First, rent-price growth will ease in the official data, which will help cool consumer price inflation. Additionally, the spread between the 10-year Treasury yield and mortgage rates will narrow, he said.
According to Yun, job growth will be the most determinant factor driving housing demand in the long term, while mortgage rate changes will drive demand in the short term.
Yun expects home sales to rise next year. He identified markets with strong home sales growth potential. In the South region, he projects Austin, Dallas, Houston and Nashville, Tennessee, to make a comeback. In the East region, he identified Durham and Chapel Hill in North Carolina, as well as cities in Pennsylvania where there are large pockets of pent-up sellers. Portland, Maine, is also drawing many high-income millennials, as is Washington, D.C.
Homebuyers will still face affordability issues in 2024
Yun expressed concern about buyer’s representation moving forward in the wake of the Sitzer/Burnett commission lawsuit verdict in Missouri. If homebuyers have to pay for their representation out of pocket, many first-time homebuyers will be excluded from the market due to a lack of capital, he said.
According to the 2023 NAR Profile of home buyers and sellers, the typical downpayment for first-time buyers was 8%. It is highly unlikely that buyers will have the resources needed to pay for their representation, he said.