Will Home Prices Rise or Fall in 2024?

Naturally, fewer buyers translate into less demand, which might affect how quickly home values increase.

Jan 31, 2024 - 14:56

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Home prices, like a lot of things, are driven by supply and demand. Due to declining mortgage rates and increased disposable income, demand for homes increased during the pandemic. The price of appreciation therefore began to accelerate.

Affordability was made worse by low supply. Given that many sellers postponed selling their properties during the pandemic—either because they were worried about contracting COVID-19 or because they were reluctant to enter a competitive buyer's market—short-term trends might have contributed to this.

When combined, these factors led to an incredible increase in property values. Many people are asking if they would ever drop again because they are now so high. However, given the ongoing shortage of supplies, any decreases would probably be mild. Most analysts believe the lack of supply has driven the dramatic price increases we've experienced over the past few years. The main issue is that new homes aren't being built quickly enough to satisfy demand.

Over the past two years, there has been an increase in mortgage rates, which has priced out home buyers who are suffering from affordability. Naturally, fewer buyers translate into less demand, which might affect how quickly home values increase.

According to data, home prices began to decline every month last year at the same time that mortgage rates began to soar. This decline persisted when 30-year mortgage rates were above 7% for the first time in 20 years.

However, rates increased even further in 2023, reaching about 8% in October. Despite this, since January, property prices have been steadily increasing.

This could be the result of an even more constrained inventory. The number of sellers prepared to put their houses on the market and forfeit lower rates on their existing mortgages shrank even further as mortgage rates rose. According to a Redfin examination of Federal Housing Finance Agency data, as of the fourth quarter of 2022, approximately 92% of homeowners with a mortgage had a rate below 6%, and more than 82% had a rate below 5%.

However, as mortgage rates are starting to decline again, the number of people looking for a home is probably going to rise significantly. This will raise housing prices together with the poor inventory.

It basically boils down to the fact that there aren't enough houses, especially starter homes, to accommodate everyone who wants to own a home. Mortgage rates may be able to moderate or increase demand, but the scarcity of suitable properties is the main issue.

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