The phrase “housing market correction” may seem like something out of a novel or news article about Wall Street analysts. However, for real estate investors and homeowners alike, it means that prices have dropped significantly since their peak—and will continue to do so until demand for properties rises again. In other words, this is not just a normal dip; it's the beginning of the end for some high-end properties.

Whether you're a first-time homebuyer, an investor looking to cash in on the booming real estate market, or a homeowner who is simply looking to upgrade your home, the housing market has undoubtedly had a significant impact on everyone, no matter their financial situation. After years of steady price increases and increasing demand from both new and existing homes, many Americans are now feeling the strain of the imminent housing market correction.

Is the Housing Market Correction Coming in 2024?

In 2024, the question of whether a housing market correction will occur is a multifaceted issue with no straightforward answer. Various experts hold different perspectives on the matter. Here's a breakdown of the contrasting viewpoints:

Correction, not crash:

Most experts align on the notion that a correction, characterized by slower growth in home prices or even marginal declines, is more probable than a crash involving steep price drops. This consensus is underpinned by several key factors:

• Strong economy and labor market: Despite inflation concerns, the economy exhibits resilience, providing stability for numerous households.
• Stricter lending standards: In contrast to the 2008 crisis, contemporary lending standards are more rigorous, mitigating the risk of widespread defaults.
• Low inventory: The limited housing supply persists, lending support to moderate price levels.

Potential for price declines:

Nevertheless, certain indicators hint at the possibility of price declines, including:

• High mortgage rates: Rates exceeding 6% might dissuade buyers and diminish affordability.
• Affordability issues: Elevated prices and interest rates collectively make homeownership less achievable for many.
• Regional variations: Market trends are likely to differ by region, with some areas, such as the west coast, potentially experiencing more significant price adjustments than others.

Overall, uncertainty remains:

Predicting the precise nature and extent of a correction proves challenging. While a full-blown crash appears unlikely, the consensus leans towards anticipating slower growth or modest price declines in 2024. The exact scenario will hinge on factors such as economic conditions, mortgage rates, and regional dynamics.

It's crucial to bear in mind that these are broad predictions, and the specific market you're interested in may exhibit distinct behavior. If you're contemplating buying or selling a home in 2024, seeking guidance from a local real estate professional can offer valuable insights tailored to your area.

ALSO READ: Will the Real Estate Housing Market Crash?

Let's take a closer look at what exactly causes a housing market correction and what you can do to prepare if/when it happens to your neighborhood.

What is a Housing Market Correction?

A housing market correction is a name for a period where prices start falling in some parts of the housing market. This usually happens when there has been a rapid rise in home values over the past few years.  Simply put, a housing market correction is a period of declining home prices that is likely to continue for at least a few years.

This is different from a normal dip, which often occurs after a period of rapid price increases. While a correction is not necessarily a bad thing, it is a sign that demand in a particular area is falling and that prices will continue to decrease until demand picks up again. Housing market corrections are caused by two major factors.

First, baby boomers are aging and are more likely to be on a fixed income than their younger counterparts. This means they can no longer afford as many expensive homes as they once did. Second, there has been an increasing demand for housing from young people and families, particularly those looking to buy their first homes. With fewer people in the market looking to purchase expensive homes, prices have gone down.

When a house loses value, it can be tempting to just cut your losses and move on. However, that might not be the best strategy when a housing market correction is happening. In most cases, it’s not advisable to sell your home during a market correction because it will likely lose even more value than it already has.

You should also expect that selling your home now will take some time. The longer you wait, the more your asking price will fall, which makes selling now less appealing as well. If you are thinking about selling your home during a market correction, keep these things in mind first:

• What type of house do you live in?
• Are you able to downsize into something smaller or build something new from scratch?
• If so, what kind of neighborhood do you want to be in and what amenities are available?
• Are those things important to you after all?
• How much equity do you have in your property?
• How much money have you spent on repairs and improvements since buying it?
• If other major expenses need to be taken care of soon as well such as getting the older car fixed or replacing an old furnace, will paying them off help with the value loss instead?

Why Do Housing Markets Experience Correction?

This is something investors and homeowners alike should know. While a housing market correction is something we should be prepared for, it’s important to remember that it doesn’t necessarily mean the end of the real estate market. Instead, a correction is simply a period during which demand falls and prices go down. Ultimately, once demand picks up again, prices will increase and the market will be stronger than ever.

Reasons for this include both external and internal factors. External factors, like aging boomers and the increasing percentage of people on a fixed income, will naturally cause a decrease in demand for expensive homes. Internal factors, on the other hand, are caused by things such as a lack of inventory and a decrease in affordability, which is why we often see a correction when housing prices drop.

How to Know If You’re in a Housing Market Correction

There are a few telltale signs that you may be in a housing market correction. These include a significant decrease in home prices since the peak of the market and a significant decrease in sales. In addition, home prices may be falling faster than they once were. But, don’t forget: a housing market correction doesn’t necessarily mean that prices are going to fall to zero. Instead, they will likely continue to decrease as long as there is a lack of demand.

If you’re one of the people who believe a housing market correction is already underway, keep an eye out for these signs:

1. Homes are selling significantly slower than they once were.
2. There is a significant decrease in prices.
3. There is a significant decrease in sales.
4. Homes are selling for significantly less than they were a few months ago.
5. Homes are selling for significantly less than similar houses are selling for in the same area.

How to Deal With a Housing Market Correction

It is difficult to predict the exact state of the housing market in 2023, but there are a few strategies that may be effective for handling a housing correction. These include:

1. Diversifying your portfolio: Investing in a variety of properties and markets can help spread risk and reduce the impact of any downturn in one specific area.
2. Staying informed: Keeping an eye on market trends and economic indicators can help you anticipate a correction and make adjustments to your investments accordingly.
3. Being patient: Real estate is a long-term investment, and corrections are often temporary. If you have a long-term perspective, you may be able to ride out a downturn and come out ahead in the end.
4. Be prepared for a long-term investment, since some corrections can take several years to recover.
5. Seek advice from experts in the field such as real estate agents, financial advisors, and economists, to get an idea of the current and future market trends.

The first thing to keep in mind when you’re in a housing market correction is not to panic. This is something that many homeowners and investors have likely done, making the situation worse than it needed to be. The best thing to do is to stay calm and proceed with caution. Stay focused on your goals, no matter how difficult they may be.

If your goal is to buy a house and you’re currently in a housing market correction, don’t change your mind. Instead, stay strong and keep looking for the right house. Once you find a house that you like and is within your price range, make an offer. Talk to your family and friends about how the housing market correction is affecting them.

Doing so will allow you to stay focused on the goal of buying a house and will help you to form alliances and find ways to help others. If you’re in a position to sell your home, do so quickly. Homes that are sitting on the market for too long will likely experience a price reduction. This means it may be in your best interest to sell as soon as possible. When you’re looking at homes for sale, stay focused on the house itself and not on the neighborhood or the price. Once you find a house that you like and is within your price range, make an offer.

What Happens After a Housing Market Correction?

Once a housing market correction has begun, it will continue until one of two things happens: the demand for homes increases, or the supply of homes increases. We often hear people talk about the importance of owning a home. It’s a significant investment that provides you with a place to live and protects your assets.

Unfortunately, most people don’t realize that it can be quite risky. A housing market correction can be a huge blow to your finances. If you’re looking to buy a home, make sure you do your research. This will help you to make a wise investment decision. Before you know it, the housing market correction will be a distant memory. Better yet, it will be a lesson that taught you a lot about investing. You may even come out ahead!

Bottomline

The housing market correction is an ongoing process that starts when a significant decrease in demand causes prices to fall. It will continue until demand increases or the supply of homes increases. As long as the demand for homes is weaker than it once was, we will continue to see a decline in home prices. The only way to stop the decline is if the demand for homes increases.

When you think about it, a housing market correction is actually a good thing. It means that homeowners are finally beginning to realize just how much their homes cost. This means you have one of the best opportunities to buy a house for a great price. With a housing market correction, now is the time to make sure you are ready to buy a home and become a homeowner.

It's important to note that this is general advice and not tailored to your specific situation. If you're uncertain about your investments or how to handle a potential correction, it's always best to consult a financial advisor.

Recent findings from a survey conducted by Real Estate Witch shed light on the challenges faced by millennial homeowners. An astonishing 90% of millennial homeowners express regrets about their initial foray into homeownership. This statistic is a stark reflection of the difficulties this generation encounters in realizing the American dream of owning a home.

The desire for homeownership remains strong within the millennial cohort, with 78% acknowledging it as a crucial part of the American dream. However, financial barriers hinder their progress, as 48% believe homeownership is unaffordable for the average millennial.

Despite the fervent desire for homes, the harsh reality of the current market, characterized by high interest rates and a limited housing supply, has left many millennials feeling trapped. A staggering 93% claim that the market has impacted their home-buying plans, with 76% expressing concerns that it will worsen before they can secure a home.

In the pursuit of homeownership, millennials find themselves making various concessions. To afford a home within their budget, 42% are willing to compromise on the characteristics of the home, and 29% anticipate making financial concessions. These compromises include accepting a higher interest rate (39%), making multiple offers (36%), maxing out their budget (30%), and paying more than the asking price (29%).

Encouragingly, there are indications that the market is gradually shifting towards buyers. Approximately 41% of millennials expect to negotiate more with sellers, and 26% anticipate sellers lowering their prices. However, despite these positive signs, 96% of millennials remain concerned about purchasing a home, fearing challenges such as not finding a suitable home (35%) and having to make major repairs (35%).

Regrets of Millennial Homeowners

Among the 33% of millennials who have already purchased homes, the regret rate has risen from 82% in 2023 to an alarming 90% in 2024. Beyond the common regret of a bad location (27%), other prevalent concerns include bad neighbors (26%), high interest rates (25%), expensive mortgages (22%), and outgrowing the home too quickly (20%).

The hidden costs of homeownership contribute significantly to regrets. Beyond the mortgage, homeowners spend an average of nearly $17,500 annually on taxes, insurance, maintenance, and repairs. Notably, 18% regret the high upkeep, 16% find the costs associated with upkeep to be too expensive, and another 16% regret the overall expense of homeownership.

Financial Realities and Concerns

The financial challenges faced by millennials are evident in the data. High interest rates serve as a barrier for half of millennials (50%), with 67% expressing regret for not purchasing a home when rates were lower. In the face of financial constraints, 78% would consider accepting an interest rate higher than the national average of about 7%, and 65% would accept rates of 10% or more.

Furthermore, 96% state that high interest rates have affected their home-buying plans, with 70% citing the impact of inflation. A significant portion of millennials (47%) plans to put down less than 20% on a home, and 25% have less than $10,000 in savings, while 12% have less than $1,000, including 5% with nothing saved.

The median U.S. home cost stands at $431,000, yet 57% of millennials aim to purchase a home costing less than $400,000. Despite the challenges, 79% would pay above asking price for their dream home, albeit down from 85% in 2023.

Methodology:

This comprehensive analysis is based on data gathered by Clever Real Estate through a survey conducted on October 24-25, 2023. The survey included responses from 1,000 American adults actively seeking to purchase a home by the end of 2024.

In summary, Millennials face formidable challenges in the pursuit of homeownership, grappling with high costs, regrets, and financial constraints. As the real estate landscape evolves, it remains crucial to address the concerns of this generation, ensuring that the dream of owning a home becomes a more attainable reality.

The housing market is experiencing a significant surge, with more than 80% of metro areas witnessing home price increases in the third quarter of 2023, according to the latest quarterly report from the National Association of REALTORS® (NAR). This surge comes amid fluctuations in mortgage rates, raising concerns about the accessibility of homeownership, especially for younger adults.

Market Dynamics and Trends

According to Lawrence Yun, Chief Economist at NAR, homeowners have seen substantial wealth accumulation, with the typical homeowner gaining over $100,000 in overall net worth since 2019. However, the persistent lack of available homes on the market is making homeownership increasingly challenging for younger generations. The 30-year fixed mortgage rates, ranging from 6.81% to 7.31%, have contributed to this scenario.

Year-over-year, the national median single-family existing-home price increased by 2.2% to $406,900. The South led in single-family existing-home sales with a 46% share, experiencing a 1.7% year-over-year price appreciation. Meanwhile, the West saw a modest 0.6% price growth. Notably, certain metro areas, including Austin and Phoenix, experienced price declines, while others like San Jose and Anaheim recorded substantial increases.

Regional Variations and Top Performers

The South dominated with the largest share of home sales, while the Midwest showcased impressive year-over-year price increases in several metro areas. The top 10 metro areas with the most substantial price hikes, recording gains of at least 12.6%, were predominantly in the Midwest, emphasizing the region's robust real estate performance.

California, however, continued to be a focal point for expensive markets, with eight of the top 10 most expensive areas located in the state. San Jose-Sunnyvale-Santa Clara, Calif., topped the list with a median home price of $1,850,000, reflecting a 9.6% increase.

Metro Areas in the Midwest Lead Top 10 in Year-Over-Year Price Increases

The real estate landscape showcases remarkable growth, with the top 10 metro areas experiencing substantial year-over-year price increases, all recording gains of at least 12.6%. Notably, six of these thriving markets are located in the Midwest, underlining the region's robust real estate performance.

• Fond du Lac, Wis.: A remarkable 18.9% year-over-year price increase.
• Hickory-Lenoir-Morganton, N.C.: Impressive growth at 17.1% in the same period.
• Oshkosh-Neenah, Wis.: Noteworthy with a 15.2% year-over-year price surge.
• Green Bay, Wis.: Strong performance, recording a 14.8% increase.
• Reading, Pa.: Demonstrating solid growth with a 14.7% year-over-year price rise.
• Newark, N.J.-Pa.: Sustaining growth with a 14.3% increase in the same period.
• Dayton, Ohio: Notable performance, boasting a 13.7% year-over-year price gain.
• Fort Wayne, Ind.: Strong real estate growth, registering a 12.9% increase.
• Farmington, N.M.: A significant 12.7% year-over-year price upswing.
• Kankakee, Ill.: Showing resilience with a 12.6% increase in the same period.

California Dominates List of Most Expensive U.S. Real Estate Markets

When it comes to luxury real estate, California takes center stage, with eight of the top 10 most expensive markets in the United States located within the state. These exclusive markets reflect not only opulence but also diverse trends in property value appreciation.

• San Jose-Sunnyvale-Santa Clara, Calif.: Securing the top spot with a median home price of $1,850,000 and a significant 9.6% year-over-year increase.
• Anaheim-Santa Ana-Irvine, Calif.: Following closely with a median home price of $1,305,000 and an 8.7% year-over-year increase.
• San Francisco-Oakland-Hayward, Calif.: A median home price of $1,300,000, reflecting a 1.6% year-over-year increase.
• Urban Honolulu, Hawaii: An outlier on the list with a median home price of $1,061,900, experiencing a -5.8% year-over-year decrease.
• San Diego-Carlsbad, Calif.: Maintaining its allure with a median home price of $978,500 and an 8.7% year-over-year increase.
• Salinas, Calif.: A robust market with a median home price of $945,300, showcasing a 5.3% year-over-year increase.
• Oxnard-Thousand Oaks-Ventura, Calif.: Demonstrating resilience with a median home price of $921,500 and a 3.8% year-over-year increase.
• Los Angeles-Long Beach-Glendale, Calif.: A prestigious market with a median home price of $897,600, marking a 1.4% year-over-year increase.
• San Luis Obispo-Paso Robles, Calif.: Sustaining its appeal with a median home price of $889,900 and a 1.7% year-over-year increase.
• Boulder, Colo.: Representing the only non-Californian entry on the list, with a median home price of $857,800 and a 3.7% year-over-year increase.

Challenges for First-Time Buyers and Affordability Concerns

Despite the overall positive trends, the report highlights challenges for first-time buyers. Housing affordability worsened in the third quarter due to rising home prices and mortgage rates. The monthly mortgage payment for a typical existing single-family home with a 20% down payment increased to $2,192, a 7% rise from the second quarter and a 19.2% increase from one year ago.

First-time buyers faced particular difficulties, with the monthly mortgage payment for a typical starter home rising to $2,149, a 6.9% increase from the previous quarter. This challenges the dream of homeownership for many, as families typically spent 40.4% of their income on mortgage payments, up from 38.2% in the prior quarter.

Call for Action

Lawrence Yun emphasized the need for intervention to maintain market accessibility, calling on the Federal Reserve to consider cutting interest rates. Congress, Yun suggested, should also explore incentives to boost housing supply and inventory, ensuring that homeownership remains within reach for a broader spectrum of Americans.