Home prices are expected to rise in 2024: 'There are simply not enough homes' to meet demand, says economist
Despite a recent slump, home prices are expected to continue to rise in 2024, according to a number of research firms that specialize in real estate forecasts, including Freddie Mac, Zillow and the National Association of Realtors.
That's because homes aren't being built fast enough to keep up with demand, which puts upward pressure on prices, says Lawrence Yun, NAR chief economist at the National Association of Realtors. With too few homes for too many buyers, NAR expects home prices to rise by 2.6% in 2024.
"There are simply not enough homes for sale," Yun said in a recent report. "The market can easily absorb a doubling of inventory."
While home construction has ticked up in recent months, the United States is still short about 3.8 million units of housing for both sale and rent, according to Freddie Mac'smost recent estimates.
Aside from a 42% ramp up in home pricesbetween January 2020 and June 2023, many homes on the market still receive multiple offers, which implies "that housing demand is not being satisfied due to a lack of supply," Yun said in a July report.
What to expect in 2024
In 2022, many potential buyers were priced out of the market after 30-year fixed mortgage rates nearly doubled, according to Freddie Mac data. This cooled the real estate market somewhat: Between July 2022 and January 2023, the median home price declined by 2.5%, according to the Case-Shiller National Home Price Index.
However, that dip in prices was short-lived, as recent increases have since offset the decline. As of July, the median price of a sold home was $406,700, a year-over-year increase of 1.9%.
While mortgage rates are still elevated — currently 7.28% for 30-year fixed-rate mortgages — underlying demand for homes has kept prices high. Based on slowing inflation, NAR expects mortgage rates to drop closer to 6% in 2024. This will further stoke demand and keep prices elevated throughout the year, says Yun.
Zillow has a similar forecast, as it expects home values to rise by 6.5% from July 2023 through July 2024, despite "despite persistent affordability challenges."
Likewise, Freddie Mac is forecasting prices rising by 0.8% between August 2023 and August 2024, followed by another 0.9% gain in the following 12 months. Part of the
rebound in prices is based on the "large cohort of Millennial first-time homebuyers reaching prime home-buying age," Freddie Mac reports.
While these outlooks bode well for sellers, it doesn't help buyers who already feel like they can't afford to buy a home.
Not all forecasts expect home prices to climb, however. Based on declining affordability and more homes being built, both Moody's Analytics and Morgan Stanleyexpect home prices to fall slightly in 2024.
Moody's says "it's premature to celebrate the end of the housing correction," which is why
it expects median home prices to decrease by 3.5% between the fourth quarters of 2023 and 2024, according to an updated forecast.