The Current Housing Market
It’s been a tumultuous journey in the real estate realm recently. A blazing market fueled by ultra-low interest rates and intense bidding wars eventually cooled off as mortgage rates soared to unprecedented levels. By August 2023, the average rate for a 30-year mortgage had more than doubled, reaching beyond 7 percent and briefly surpassing 8 percent in October. This surge led to a slowdown in buying activity, but with inventory still scarce, home prices remain unaffordable in many parts of the U.S.
Home Sale Prices
The country’s median existing-home sale price in October 2023 hit a record high at $391,800, according to the National Association of Realtors (NAR). For new-construction homes, National Association of Homebuilders (NAHB) data shows a slightly higher median sale price at $409,300.
Inventory
Despite the demand, the supply of homes for sale remains notably low. In October, the inventory of unsold existing homes was at a 3.6-month supply, well below the balanced 5- to 6-month supply that the market requires.
Days on Market
With high mortgage rates limiting purchasing power, homes are spending more time on the market. In October, the median length of time homes spent on the market was 23 days, per NAR.
Homes Sold
Due to higher mortgage rates, fewer existing homes are selling nationwide. In October, sales were down 14.6 percent year-over-year, while the pace of new single-family home sales rose 17.7 percent in the same period, per NAHB data.
Mortgage Rates
Bankrate’s national survey revealed that the average 30-year mortgage rate as of late November was 7.55 percent.
Forecast for Mortgage Rates and Types
Industry experts, including Lawrence Yun, NAR’s chief economist, predict that mortgage interest rates could hover around 7 percent for most of 2024. Yun believes rates have peaked and should return to 5.5 or 6 percent within two years. This shift may lead to a greater interest in adjustable-rate mortgages in the short term, but Yun predicts a return to the traditional 30-year fixed-rate mortgage for 90 percent of Americans in the long run.
Danushka Nanayakkara-Skillington, assistant VP of forecasting and analysis for NAHB, agrees, foreseeing rates dropping to about 6 percent by mid-2024.
Greg McBride, CFA, Bankrate’s chief financial analyst, believes that the 30-year fixed-rate will remain the dominant mortgage product, providing certainty to borrowers and attracting global investors.
Predictions for Home Prices
Lawrence Yun foresees minimal changes in nationwide purchase prices next year, with fluctuations of only about 5 percent either way. Exceptionally, California might experience a 10 percent decline due to its vulnerability to interest rate changes. Overall, Yun expects prices to appreciate by 15–25 percent over the next five years.
Greg McBride predicts that home prices will see low- to mid-single-digit annual appreciation, consistent with the long-term average.
Will the Housing Market Crash?
Despite showing bubble-like characteristics, Yun does not anticipate a residential housing market crash. He predicts a low point in sales next year, with only 5.3 million units sold, gradually increasing to an annual 6 million units by 2027. Yun emphasizes that a crash requires oversupply, which is not the case with current inventory levels. Stricter lending standards also contribute to a stable market, preventing the issuance of loans that borrowers can’t afford.
“A crash happens with oversupply. A 30 percent decrease will not happen, because there isn’t enough inventory.” — Lawrence Yun, Chief Economist, National Association of Realtors
Shift into a Buyer’s Market?
Yun expects the seller’s market to persist as long as housing inventory remains low. However, by five years out, he foresees a transition to a more balanced market, where negotiating power between buyers and sellers becomes more equal. Caroline Feeney, director of content and executive editor at HomeLight, suggests that this shift has already begun, with 51 percent of HomeLight agents describing their current local market as a seller’s market. She anticipates a more balanced market within a few years.
Where Will New Homes Be Built, and What Kind?
With hybrid work schedules and changing commuting patterns, Yun predicts continued strength in the suburban market. Growth is expected in areas with rising populations, including the Carolinas, Florida, Texas, and Tennessee. Nanayakkara-Skillington of NAHB supports this prediction, noting that 50 percent of new single-family construction is in the South.
While single-family home construction decreased at the end of 2022, multi-family homes’ construction increased, attributed to lower prices and the need for more affordable housing. However, Nanayakkara-Skillington expects the multi-family market’s growth to stabilize within a few years.
The next five years in the housing market promise both challenges and opportunities. As the landscape evolves, prospective homebuyers should stay informed, adapt their strategies, and remain vigilant in their financial preparations. While uncertainties exist, the overall outlook suggests a market that, despite fluctuations, will likely continue to offer viable prospects for those looking to enter the realm of homeownership.