Will the housing market crash in 2024

Many would-be homeowners and sellers find themselves in a state of confusion regarding the real estate market. Will the housing market crash in 2024? Are we all in a housing bubble about to burst? Is the situation similar to the 2008 housing market crash? Will home prices increase or fall in the coming year? We’ll try to settle all the uncertainties, here.

Here’s a breakdown of what exactly happened in 2023. This year, the median home price for existing single-family homes in the U.S. reached a substantial $394,350. This marks the third consecutive month of year-over-year rate hikes. Additionally, the average 30-year mortgage rate stood at 7.69 percent.

The trajectory of housing prices, mortgage rates, and inventory levels will continue to influence housing affordability in the upcoming year. If you’re wondering, will the housing market crash in 2024, here’s what the experts are predicting.

Will there be a decline in housing sales?

National Association of Realtors (NAR) Chief Economist Lawrence Yun assessed the current state of the U.S. residential real estate market, highlighting the dominance of high mortgage rates and low inventory in 2023. He anticipates a significant 18% decline in home sales this year, following a 17% reduction last year. Driven by exceptionally high-interest rates, 30-year-fixed mortgage rates peaked at 8%, impacting the overall economic performance.

He emphasized the impact of high home prices, attributing them to the lack of inventory, making entry difficult for first-time buyers.

Despite challenges, Yun believes interest rates have peaked and forecasts a drop to 6-7% by spring, with an increase in sellers entering the market. Builders, of newly constructed home sales, also play a crucial role in alleviating the housing shortage.

Yun expects existing home sales to rise some more next year and anticipates a boost in buying when international buyers return to the market. 

Selma Hepp, chief economist at CoreLogic, emphasizes that a reduction in mortgage rates would stimulate home sales activity, projecting an increase in 2024 compared to 2023. Lower mortgage rates are anticipated to incentivize more sellers to transition from their current homes, contributing essential inventory to the market and fostering increased transactions.

So, will the housing market crash in 2024?

While home prices have surged to unprecedented levels in recent years, experts generally agree that the housing market is more likely to experience a correction than a crash. However, any substantial and sudden drop in home prices is less probable.

One key factor supporting this outlook is the resilience of the economy despite facing high inflation. Furthermore, a housing market crash typically necessitates a disturbance in the existing housing equilibrium, specifically an imbalance where there is more supply than demand for homes.

Given the persistently limited inventory and an anticipated influx of prospective buyers with declining mortgage rates, it seems improbable that the supply of homes will outstrip demand in the near future. Especially, to an extent that would trigger a housing market crash.

There are certain expectations for 2024. If the labor market weakens to the extent that it pushes the economy into a recession, more homeowners might need to sell their homes to access equity, potentially leading to a decline in home prices due to increased supply.

Another potential concern is the further devaluation of commercial properties, which could prompt local governments to raise residential property taxes to compensate for tax revenue shortfalls.

Is the housing inventory likely to increase?

To witness a substantial improvement in inventory levels, there must be either a notable influx of existing homeowners listing their properties or a significant number of newly constructed homes entering the market. Although both scenarios appear somewhat improbable, experts anticipate a modest uptick in housing inventory for 2024. There should be an increase in home construction, coupled with a greater willingness among existing homeowners to sell.

Will home prices witness a decline or a further spike?

Experts predict some more increase (of around 3 to 4 percent) in home prices. There is an intricate connection between prices and housing inventory and it will continue to keep the prices up. Home sellers are likely to be hesitant to trade their low-interest rate mortgages for higher ones, keeping the housing inventory constrained. While more homeowners may be compelled to sell over time due to life events, inventory is unlikely to see a substantial increase. As a result, prices are not expected to fall on a year-over-year basis unless there is a decline in demand.

How can prospective buyers prepare for today’s market?

Buying a home is tricky these days because prices and mortgage rates are high. Your monthly mortgage payment will most likely be twice what it was three years ago.

To make things work, some people are choosing to buy in cheaper areas, away from big cities. Others might have to spend more money or settle for a smaller house. Despite the challenges, the current market is less competitive than before, giving buyers a chance to save money and maybe get a discount on a house sale.

Prospective buyers should exercise caution to avoid taking on more financial commitments than they can handle. With home prices reaching record highs in most markets, financing costs at their highest in over two decades, and substantial increases in insurance costs, the notion of securing a bargain is questionable. Being prepared to walk away may ultimately prove to be a prudent choice.

If you’re thinking of buying real estate, it’s a good idea to save more money, improve your credit, and research different towns and neighborhoods to find the best fit for you.

Will 2024 be a buyer’s market or continue to be a seller’s market?

There’s no doubt that limited inventory provides sellers with a distinct advantage. The surplus of buyers compared to available homes turns each listing into a coveted commodity. Without a substantial increase in the number of homes on the market, the seller’s market is unlikely to undergo significant changes next year.

Considering expectations regarding interest rates and supply, the demand is projected to surpass supply, mirroring the current conditions. It is anticipated that supply will persist below the threshold of what is considered a balanced market.

While the challenge of low inventory won’t see a quick resolution, the demand is expected to be impacted by high mortgage rates, potentially leading to a more balanced market in 2024. Sellers may find themselves more frequently making concessions, such as covering closing costs or offering rate buydowns, in the coming year.

Key takeaway 

Amid historically high mortgage rates and home prices, coupled with tight inventory, many potential sellers and aspiring buyers are experiencing apprehension about next year’s housing market situation.

• The housing market remains favorable for sellers due to limited inventory. And, the inventory is expected to remain low in 2024. 
• Currently, there’s no indication or expectation of a housing market crash in 2024.
• Potential buyers will still be discouraged by high mortgage rates and steep home prices.
• A decline in rates in 2024 could stimulate activity for both buyers and sellers.
• If you absolutely must buy a house, consider taking the necessary time to improve your financial standing.

According to experts, affordability struggles will most likely persist in 2024. Pent-up demand and limited inventory are likely to support the price growth. Moreover, high mortgage rates are anticipated to endure until the Federal Reserve decides to reduce the federal funds rate.

FAQs

Is 2024 a favorable time to purchase a house?

Determining the optimal time to buy a home in the coming year involves considering various factors such as economic trends, interest rates, and regional market conditions. Instead of waiting for the perfect market timing, it is advisable to start researching preferred living areas within your budget, monitor mortgage interest rates, and diligently save for a down payment. Utilizing a loan calculator can assist in estimating your potential monthly mortgage payment.

In 2024, you should consider purchasing a house only if:

• You are debt-free.
• You have an emergency fund covering 3 to 6 months of expenses.
• Your monthly house payment, on a 15-year fixed-rate mortgage, is 25% or less of your monthly take-home pay.
• You possess cash for a down payment. 
• You can cover upfront closing costs without compromising your down payment.

Read more: Average down payment on for first time buyer

Should I buy a house during a recession?

The decision to buy a house during a recession presents both advantages and risks. On the positive side, mortgage rates are likely to decrease, and home prices may soften due to reduced competition. However, securing a mortgage during a recession could be challenging, and the risk of job loss leading to loan default is a concern. 

Given the intricacies of the circumstances, relying on the expertise of an experienced local real estate agent is a wise decision. Whether you’re entering the market as a buyer or a seller in 2024, it’s best to allow a professional to guide you through the process.

Why are houses so expensive?

The skyrocketing cost of homeownership in recent times is due to various factors such as the surge in demand for homes and limited housing supply. Unfortunately, income growth has not kept pace with the rapid growth in home prices, resulting in aspiring buyers needing a larger portion of their income to afford a home.

What should I keep in mind before buying a property? 

Although economists and real estate experts can analyze indicators to make informed predictions about future home prices, it’s crucial to acknowledge the rapid changes in the market. 

If you’re considering buying a house now, stay vigilant about factors that could influence home prices, including housing inventory, new construction, and the overall economic conditions in your area. Additionally, mortgage rates will play a substantial role in shaping future home prices. Even if there is a decrease in home prices, many experts expect rates to remain elevated for the foreseeable future.

Are there any warning signs of a potential housing market crash?

As of now, there is no imminent threat of a housing market crash in 2024. However, it’s essential to monitor economic trends, interest rates, and housing inventory levels for a clearer view.

Written by Ramona Sinha. December 17, 2023

Ramona is the Senior Content Writer for Kukun. This experienced blogger uses simple and succinct words to decipher the complex phenomenon called life. She has written articles covering a broad range of topics, such as real estate, lending and mortgage, finance, business, taxation, home designs, home improvement projects, decor concepts, and more. An avid traveler, she’s a digital nomad at heart and an animal lover from the depth of her soul.