In a housing market that has recently experienced a cooling trend, experts are unanimous in asserting that it's not heading toward a crash. As we approach 2024, experts shed light on the anticipated shifts and trends that will shape the housing landscape in 2024.
2024 Housing Predictions: More Options and Incremental Affordability
According to Zillow economists, prospective home buyers in 2024 can expect a slightly expanded inventory and a modest improvement in affordability. This comes after a year dominated by headlines about an inventory crunch and mortgage rates reaching 20-year highs. Despite these challenges, the cost of buying a home will persist as a significant factor, maintaining pressure on the rental market.
The prediction is that home buyers will face continued expenses, leading to a prolonged period of renting, a trend more prevalent in this generation compared to previous ones. For those venturing into homeownership, the focus is likely to shift towards properties requiring renovations. The do-it-yourself ethos will keep new homeowners engaged in upgrading and repairing their new abodes.
The Mortgage Rates Dilemma
Higher for longer” is the prevailing sentiment regarding mortgage rates in the upcoming year. The sustained high mortgage rates are expected to drive more homeowners, who secured long-term payments during historically low-rate periods, to list their homes for sale. This shift could be attributed to a growing impatience with the anticipation of the return of the ultra-low rates witnessed in 2021.
However, a scarcity of homes for sale has kept competition fierce throughout the year. Homeowners, reluctant to sell amid rising costs, have clung to their ultralow interest rates. Zillow forecasts a potential increase in the number of homeowners willing to end their holdout for lower rates, leading to more homes entering the market. This influx could be favorable for home buyers, dispersing demand and alleviating upward pressure on prices.
Addressing Affordability Concerns
Despite the challenges posed by high mortgage rates and limited inventory, Zillow projects a marginal improvement in affordability in 2024. The forecast indicates a steady trajectory for home values, with a marginal decrease of 0.2%. Affordability, a top concern for potential home buyers, is expected to witness slight relief.
Zillow suggests that the cost of buying a home may stabilize in the coming year, with the possibility of a decline if mortgage rates cooperate. This scenario would provide breathing room for wages and buyers' savings to catch up, offering a reprieve after the rapid escalation in housing costs over the past two years. With wage growth remaining robust, the proportion of income spent on a mortgage is anticipated to decrease, even if costs remain relatively constant.
Continued Challenges and Potential Solutions
Despite the expected improvements in affordability, many households may still find themselves priced out of the market. The demand for single-family rentals is projected to rise as families seek more affordable alternatives with desirable amenities. Homeowners may contribute to the increase in single-family rental inventory by opting to convert their homes into investment properties, capitalizing on the ultra-low mortgage rates they currently hold.
Urban Rental Trends: Following New York City's Lead
As the real estate landscape evolves, urban rental dynamics are taking cues from New York City. Throughout the pandemic and preceding it, suburban rent prices exhibited faster growth than those in urban neighborhoods. While the gap between suburban and urban rents has narrowed, suburban rents continue to outpace their urban counterparts in 33 of the 50 largest metro areas.
Data from StreetEasy, Zillow Group's New York City real estate marketplace, reveals a significant surge in rental demand near commutable areas with easy access to Downtown or Midtown Manhattan. Conversely, neighborhoods farther from these office-heavy districts experience relatively less demand. StreetEasy experts predict a robust year for Manhattan demand in 2024, with Zillow anticipating a ripple effect as more markets witness a surge in rental demand near downtown centers.
The ongoing multi-family construction boom in 2024 is expected to provide renters looking for downtown residences with an abundance of options. The influx of new homes into the market creates a scenario where landlords, vying for tenants, have a greater incentive to compete on price. This heightened competition is a contributing factor to the increasing prevalence of rental listings offering concessions to attract potential tenants.
The Rise of Homes Needing TLC: Competition Between Buyers and Flippers
Traditionally targeted by home flippers, properties in need of a little tender loving care (TLC) are now attracting interest from buyers searching for their primary residence. The prolonged period of below-average inventory levels, although predicted to improve in 2024, will still fall short of pre-pandemic norms. Faced with limited choices, home buyers are becoming more willing to overlook minor flaws, such as outdated bathrooms or kitchens.
With the current high cost of purchasing a home, flipping properties has become a more challenging endeavor. This shift means that buyers may encounter less competition from flippers compared to previous years. Despite a reduced likelihood of bidding wars, homes in need of improvement won't come cheap. Home buyers are anticipated to frequent local hardware stores as they embark on do-it-yourself (DIY) home improvement projects.
If Zillow's 2024 home trends are any indication, expect a surge in brutalist-inspired features and sensory gardens on home improvement to-do lists. However, “cloffices” and Tuscan kitchen designs are not projected to be as prominent in the evolving home improvement landscape.
