Preparing for the housing market in 2024

The story became that it wasn’t a good year to buy a home. But as 2023 came to a close, glimmers of hope started appearing. And when we look beyond those three, there are lots of reasons to be optimistic in 2024.

Are you thinking of making 2024 the year to buy a home? Start by getting preapproved, or read on to learn what’s shaping the housing market this year.

Where are we on the rates rollercoaster?

Last year will be remembered for mortgage rates reaching the 8% barrier, but for those paying attention at the end of the year, rates were down over a full percentage point, going under 7% before the year closed out. There’s reason to hope that that trend will continue, and rates may find themselves firmly in the 6% range for much of 2024.

Lawrence Yun, chief economist at the National Association of Realtors® (NAR), is forecasting mortgage rates to drop between 6% and 7% by the spring. “I believe we’ve already reached the peak in terms of interest rates,” Yun said. “The question is when are rates going to come down?”

The Mortgage Bankers Association (MBA) is just as optimistic, forecasting rates to reach 6.1% at the end of the year, with beneficial rates throughout the next twelve months to get us there.

The reason for this optimism has a lot to do with goings-on in Washington, D.C. The Federal Reserve has been aggressively hiking its benchmark federal funds rate in order to get a handle on inflation. Inflation went up to the 9% range in 2022 as the pandemic shook up our economy, and the Fed’s goal is to maintain an inflation rate around 2%. The Fed’s rate hikes seem to have gotten inflation under control, as they’ve paused their hikes over their last few meetings in 2023.

If the Fed continues to feel confident that inflation is coming down, they will hopefully continue their rate hike pause. There’s even a chance that they may bring their rate down later in the year if they think their federal funds rate is slowing economic activity down too much.

According to Mike Fratantoni, Chief Economist and Senior Vice President for Research and Industry Technology at MBA, “The Fed’s hiking cycle is likely nearing an end, but while Fed officials have indicated that additional rate hikes might not be needed, rate cuts may not come as soon or proceed as rapidly as previously expected.”

Outsmarting high mortgage rates

There’s an old saying in real estate: “Date the rate, marry the house.” What this time-tested axiom means is that there are many ways you can improve your mortgage rate situation, and if you find a house you love, don’t wait for mortgage rates to come down because you don’t want to miss out. Here are a few ways you can bring your rate down:

• Rate Reduce: This temporary buydown allows you to keep your payments low for the first year or two of your loan but still know exactly what all your future payments will look like. An upfront deposit from the seller at closing allows your mortgage rate to essentially be “bought down” for a specified period of time. We offer five different Rate Reduce programs to help you ease into your new home and mortgage payment as you build equity.
• Adjustable Rate Mortgage (ARM):ARMs offer the potential for lower monthly payments at the beginning of the loan. With an initial fixed-rate period (usually for five, seven or 10 years) featuring a low introductory rate, it is followed by a variable-rate period for the remainder of the loan.
• Paying Points: You can save on your monthly mortgage payments by paying a little more at the beginning of the loan. This is known as buying down the rate or paying points. You pay your lender extra money up front — on top of your closing costs and down payment — and in return, they will reduce your mortgage rate. This could save you thousands over the life of the loan.

If (when?) rates come down

With so many experts seeing the possibility of rates coming down in 2024, it leads to an obvious question: What happens if they do?

This involves a lot of hypotheticals, but if rates come down, there are three scenarios that may play out.

1. More homeowners will put their homes up for sale. 

Many people have been reluctant to sell the homes they bought or refinanced when rates were at historical lows two-plus years ago. If rates come down, more and more people may be willing to pass up their low monthly payments (often called mortgage golden handcuffs) to find a home that better fits their needs now.

1. More homebuyers will get in the game.

Just as homeowners have been waiting for rates to come down to sell their homes, many potential homebuyers have been waiting on the sidelines as well. However, this could increase competition and drive home prices up.

1. More homeowners will have reason to refinance.

Those who bought in the last year or so may find reason to refinance their mortgage, either to lower their monthly payments or to free up some of their equity and turn it into cash. If you’re interested in a refinance, talk to a loan officer today about your options.

In a competitive housing market, you often need to move fast to get in front of the competition. If lower mortgage rates increases competition in 2024, Same Day Mortgage can help you get approved for a loan in one day so you can move as fast as all-cash buyers.

Hot home prices cooling off

This past year was a big year for home prices, as they continued their steady climb upward, even in the face of higher mortgage rates. After median national home prices broke the $400,000 barrier once in June of 2022, that milestone was crossed three months in a row in the summer of 2023. Overall for the year, home prices were at the highest they’ve ever been.

High home prices and high mortgage rates aren’t the most conducive combination for getting people into homes, but many experts see that changing in 2024. While many are expecting rates to come down this year, home prices seem poised to hold steady. Considering that lower rates will likely increase demand for homes, it’d likely be considered the best outcome possible if prices remained stable.

NAR expects home prices to increase slightly (0.7%) in 2024. Yun notes that “Lack of inventory is providing the support for high prices, but it’s also making it super difficult for first-time buyers to enter the housing market.”

Home prices usually follow a seasonal pattern, which has been reestablished after being disrupted during the pandemic. Prices tend to start going up in spring and peak in the summer, before coming down with the temperature into the winter. If you can choose to purchase a home during the winter, you can take advantage of these seasonal trends and get more for your money.

Getting over the down payment hurdle

One of the biggest issues with higher home prices is affording the down payment needed to buy a home. No matter what happens with home prices, we can help you afford the initial investment in your home.

There are many down payment assistance programs created to help first-time homebuyers make their first purchase. From state to federal programs to neighborhood- to occupation-specific options, both government agencies and private organizations have down payment assistance programs worth investigating. Start by talking to a local lending expert who can help you sort through your options.

Finding a home – any home – to buy

No matter what happens with rates or home prices, the most important aspect of buying a home in 2024 is finding a home to buy. Over the last few years, issues with inventory have made it hard for homebuyers to find a home that checks enough of their boxes to get them to make an offer. And this is not an issue with roots in the pandemic, inventory has been a problem for years.

This is one of the thornier issues that faces the housing market in 2024. While mortgage rates and home prices can go up and down with little friction, it’s hard to add more homes to the market.

One way to do that is by more people putting their homes up for sale. Altos Research keeps track of the numbers of home for sale and noted that in the first week of December, there were 1.2% more homes for sale than during the same week in 2022. They go on to note that inventory is likely tied closely to mortgage rates in 2024:

• Mortgage rates go up -> inventory goes up
• Mortgage rates go down -> inventory goes down

This reflects the virtual zero-sum game of existing-home sales, where demand goes up when rates go down, taking homes off the market quickly.

The other, more permanent way to add to the housing inventory is by building new homes. This is also time-consuming. Lawrence Yun sees improving conditions for new home construction in 2024. “Because of homebuilders’ ability to create more inventory, new-home sales could be higher this year despite increasing mortgage rates. This underscores the importance of increased inventory in helping to get the overall housing market moving,” said Yun.

Housing starts are forecast to rise to 1.48 million, or 6.5%, in 2024. NAR expects newly constructed home sales will grow by 19.4% in 2024, to 800,000. “Builders are back on their feet, up 5% in newly constructed home sales year to date,” said Yun. “Builders can simply create inventory. In a housing shortage environment, builders are really benefiting.”

New home construction offers certain financial advantages to homebuyers that existing homes sales do not. Builders can incentivize buyers with temporary buydowns, like Rate Reduce.

Can’t find the home you want? Create it

For homeowners who are having trouble finding the right home for them, perhaps buying isn’t their best option. Renovating your current home may allow you to get everything you want in a home without changing your address.

You may be able to tap into the equity in your home to get the funds necessary for a small, or large, renovation project. A home equity line of credit (HELOC) or a cash-out refinance can turn some of your home’s equity into cash.

Making sure you’re ready for 2024

As you’ve seen, many housing experts are hopeful that 2024 will be a better year for the housing market – particularly when it comes to mortgage rates. But home prices and housing inventory are giving reasons for concern. That’s why it’s so important to be prepared this year.

The best way to do that is by working with a local lending expert. Many of the trends that we’ve identified in this article will have unique characteristics in your area, and only by working with a local expert will you be able to best navigate them. Have a wonderful 2024!

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