December Market Report: What’s in Store for 2024

December Market Report

As we wrap a challenging year for residential real estate, we’re taking a look back before we preview 2024. Zillow economists predict that buying a home could remain expensive in 2024, but slightly less so than in 2023. This relief won’t necessarily come from a drastic drop in mortgage rates, but the Fed’s recent indication of rate cuts in 2024 suggests mortgage rates could move lower to engage more buyers.

And as competition remains high for lower priced homes, fixer-uppers will see increased interest. Across the price spectrum, many homeowners will end their holdouts for lower rates due to life changes that can no longer wait.

Let’s get into the details with Zillow Senior Economist Orphe Divounguy.

More homes will hit the market as homeowners accept higher rates

housing inventory

Zillow economists predict that the historic inventory lows of the last few years are behind us.

A stubbornly small pool of homes for sale has kept competition fierce for most of 2023, even with high costs limiting the number of active buyers. Beginning in 2022, homeowners have been more likely to hold onto the ultra-low interest rates on their current mortgages. 2023 started out with a paltry 884k homes on the market, a January low surpassed in recent years only by January 2022, which saw just 777k homes for sale.

Many homeowners still have their eye on homes that better suit life changes — be that from upsizing, downsizing, or relocating. Zillow predicts more of these homeowners will stop waiting for lower rates, and go ahead with those moves.

More homes on the market — even the gradual increase Zillow economists expect — would be good news for home buyers, spreading demand and softening prices.

Takeaway: Buyers should be ready for more competition in the spring, but so should sellers. That wasn’t always the case in 2023, with many markets experiencing sluggish stretches, especially for more expensive homes. Homes that garnered attention in 2023 may need more competitive pricing, repairs, and enhanced curb appeal.

Interest rates could fall modestly and stabilize

consumer price indexThe Consumer Price Index measures inflation, which is approaching the Fed’s 2% target.

“It’s not just how high mortgages are — but also the uncertainty surrounding the big jumps that causes people to pull back and wait things out,” Divounguy says.

Rates have fluctuated wildly for the last two years, but there’s reason to believe that will subside in 2024. Inflation continues to decrease toward the Fed’s 2% target, which could bring more stability to the housing market.

“We could see fewer of these big jumps in treasury yields and mortgage rates,” Divounguy says. But he cautions that we shouldn’t expect a big drop in mortgage rates, even if the Fed makes cuts next year.

Takeaway: Even small rate dips will be good reason for buyer clients to lock in a mortgage. Connect them with mortgage partners and stay up on your mortgage rate news. Watch for reports on inflation and the labor market, as they can be catalysts for big moves in mortgage rates.

Affordability will improve as wages continue to grow

average hourly earningsAfter sharp drops during the pandemic, real hourly wages are climbing again.

When controlling for inflation, real wages for many Americans are increasing. And the stock market, after decreasing in 2022, surprised this year: The S&P 500 is up roughly 16% year over year, signaling that financial wealth is also on the rise. Higher real incomes mean higher purchasing power for housing at the start of the new year.

“Along with declining rates in November, mortgage applications increased for 5 consecutive weeks. A resilient economy with rates staying where they are or falling just slightly is a windfall for housing,” Divounguy says. “It means affordability is likely to improve over the next year. ”

Takeaway: To coach buyer clients, focus on monthly costs as a percentage of income instead of only looking at mortgage rates.

Curious how the market has evolved this year? Catch up on all of our 2023 market reports for agents: