What to Expect in the 2024 Housing Market

2024 will look a lot like 2023 with the “locked-in effect” still dominating housing dynamics though we can expect some of the worst market pathologies to moderate slightly; most market indicators point in a more optimistic direction than they did going into 2023 though affordability will still be a major issue; more optimistic is not the same thing as optimistic; something can be better than something else without being good, just as your cafeteria at work is better than your high school cafeteria was but neither is exactly gourmet. 

For those of you unfamiliar with the term “locked-in effect” it refers to the fact that 85% of households have mortgages with a sub-five percent rate they do not want to lose by switching homes. That said, the Federal Reserve recently paused its interest rate hikes, and the market consensus is that we can expect rate cuts in 2024 though they may be concentrated in the second half of the year. However, it is unlikely that interest rates will drop below 5%, and we must keep in mind that many individuals have mortgage rates that are even lower than that. 

Here is a graph of the median interest rate on a 30-year mortgage over the last ten years: Anyone who got a mortgage/refinanced between the advent of the Great Recession and 2023 will find himself with a worse interest rate on a new loan than he has on his existing loan.

Predictions

Price increases

Overall, I expect prices to increase by about 3.5% nationally, higher than the 2.6% predicted by the National Association of Realtors; that said, because the NAR uses a different method of measuring home prices, a median price index, their prediction might be true of their method in particular; a repeat transaction index, which will be discussed in more detail below and is a method I prefer over the NAR’s, will show a larger increase. However, we can expect softening in a variety of markets. 

The 2024 market will be one where there are distinct winners and losers instead of the nearly universal price increases mixed with stability (what mathematicians refer to as a “monotonic increase, i.e. there are pauses and moves upward but no declines—in this case, the space is “nearly monotonic” a phrase that explains why I am no longer welcome in mathematical circles) that has characterized the housing market in recent years. Next year some markets will take meaningful hits, though there will be no devastating ones (i.e. one that becomes a cause for concern for Fannie and Freddie), and there will certainly be no overall collapse.

Home sales volume 

I expect home sales volume across to country to go up by about 9.5% next year—a more pessimistic outlook than the National Association of Realtors’ 13.5%; The reason I am less optimistic is that the interest rate reductions that will drive this increase in volume are likely to be concentrated in the second half of the year—meaning that they will take effect in the second half of the summer season. 

Of course, we can expect mortgage interest rate reductions in the lead-up to these Fed cuts, but these will be small in comparison to those that follow observable Fed action. That said, this is not the only effect in play— more homeowners are not locked in by those juicy sup-5% interest rates than there were last year, so this too will help volume increase as well.

Apartment rents  

Apartment rents will decrease slightly. A boom in apartment building construction combined with greater worker confidence in the continued availability of hybrid and work-from-home work arrangements has decreased rents in major metros—though rents might increase in locals that are “a tough but doable commute.” For example, Providence RI saw a 5% rental increase as people moved to it to escape Boston’s unaffordable prices.

 Median price indices

As interest rates loosen, expect median price indices and repeat transaction indices to disagree about the direction the market is moving in certain areas. Median price indices simply take all sales in a particular geography and plot the median observed sale price. Repeat transaction indices use regression analysis to take properties that sold at two different points in time to determine a time effect instead. 

Median price indices can confuse home buyers’ moving up or down market with an actual change in housing affordability. For example, interest rate hikes might make starter homes less affordable, resulting in fewer being sold while luxury homes continue to sell. This could push a median sales price index up even though the effect of the interest rate hike according to a repeat transaction index might be in the opposite direction. There is a difference between home prices overall and the kinds of homes that are selling. Expect these two different approaches to disagree and to see articles speculating on which of the two is “right.” (There is a reason economists put effort into developing repeat transaction indices, so I am going to back them if I must declare one or the other to be “correct.” Of course, the two approaches measure slightly different things, but RTIs generally offer a better answer to the question, “Is this market heating up or cooling down?”)

Read more: Why We Need to Stop Referring to Buyer’s and Seller’s Markets

Summary

The locked-in effect will moderate this year: That said, it is not going away, and it will still be the single most crucial factor to consider when judging the housing market for some time.. Things are returning to normal, but they are not doing so with any alacrity. In future articles, I will take each of these predictions and analyze the evidence for them in more depth. 

Franklin Carroll

Franklin Carroll is Kukun's VP of Modelling and Analytics; After finishing his studies at the University of Chicago, he worked at Fannie Mae where he helped build Collateral Underwriter, roll out the Value Verify initiative, and specialized in collateral related and credit related policy.

Published January 10, 2024