In recent years, the housing market has experienced a significant increase in home prices, leaving many potential buyers shocked by the skyrocketing costs. According to data from Redfin, the average home price in September 2023 reached a staggering $411,868, marking a 2% year-over-year jump. On top of that, a report by Goldman Sachs predicts a further 4.2% increase in home prices in 2023, with a more modest but still notable 1.3% jump expected in 2024.
However, these forecasts are not set in stone, and there are several factors that could potentially lead to a decrease in home prices in 2024. One such factor is the possibility of another spike in mortgage rates. The current high mortgage rates, with the average interest rate for a 30-year fixed-rate mortgage sitting above 8% as of October 27, have contributed to the challenging market for buyers. If the Federal Reserve decides to raise the benchmark rate again in the coming year, it would likely lead to an increase in mortgage rates, which could ultimately result in lower housing prices. Although some rate cuts are anticipated in 2024, this could change, especially if inflation heats up once again. While mortgage rates do not always directly correlate with housing prices, higher rates tend to deter potential buyers, which, in turn, reduces demand and could lead to lower prices.
Another factor that could potentially cause a decline in home prices is the occurrence of a recession. While the economy might not currently be in a recession, the technical definition of a recession is when a country's GDP falls for two consecutive quarters. Although economic insecurity may be prevalent, a recession has yet to materialize. However, if a recession were to occur, it would likely leave many Americans unable to afford homeownership, resulting in reduced demand and subsequently lower prices for those still in a position to buy a home.
Lastly, the possibility of a bursting housing bubble cannot be ignored. All markets are cyclical, and the housing market is no exception. Looking back to the 2008 credit crisis, home prices reached unprecedented heights before the bubble burst, causing prices to plummet rapidly. While there is currently no evidence that a housing bubble is on the verge of bursting, significant shifts in the market are not always predictable. Therefore, a major shift could potentially happen in 2024, leading to a decrease in home prices.
Despite the current seller-friendly market conditions, with high prices and demand outpacing supply, there is still a chance that prices could decrease in 2024. It is crucial to consider these potential changes when assessing the housing market. Additionally, mortgage rates remain a major hurdle for potential buyers, with rates above 8% as of October 26. However, there is some hope for relief in the coming year concerning mortgage rates. The Federal Reserve might cut rates, albeit not significantly, leading to a small dip of up to 0.5%. Furthermore, if inflation continues to decrease and the job market cools down, there could be further relief for mortgage seekers.
While it is unlikely that mortgage rates will return to the exceptionally low levels seen in 2020 and 2021, which hovered around 2%, there is a possibility of some relief in 2024. This relief could be driven by changes in economic indicators such as inflation and the job market. As always, prospective buyers should monitor these factors closely and consider their options carefully when navigating the housing market.
