home prices rose at a double-digit annualized rate for the better part of two years from the second half of 2020 through 2022, a notable burst after an upward streak stretching back to 2012. As mortgage rates rose, year-over-year home price growth slowed in early 2023 before lower mortgage rates early in the year spurred enough buyer demand to reignite competition for still-limited real estate inventory. Home prices are starting to rise again, and while they haven't reached a new monthly peak, we expect on average for this year we expect the average home price for 2023 to slightly exceed the annualized average for 2022.

However, even with the lower mortgage rates early in the year, we expect the average home price for 2023 to slightly exceed the annualized average for 2022. <However, even during the brief period when prices declined, using a mortgage to buy a home remained expensive. As of May 2022, buying a typical for-sale home listing at the prevailing rate for a 30-year fixed-rate mortgage with a 20% down payment meant shelling out a quarter or more of a typical household's salary. In fact, in October 2023, it required 39% of typical household income and this share is expected to average 36.7% for the full calendar year in 2023. This figure typically hovers around 21%, so it is well above the historical average. We expect a return to pricing in line with financing costs to begin in 2024, and house prices, mortgage rates and income growth will contribute to the improvement. House prices are expected to decline slightly, falling by less than 2% over the year on average. Together with lower mortgage rates and income growth, this will improve the share of mortgage payment for home purchase relative to average income to an average of 34.9% in 2024, with the share dropping to less than 30% by the end of the year.

Slight increase in home sales

After a surge in home sales during the COVID-19 pandemic, existing home sales eased in the latter half of 2022 as mortgage rates rose, rising from just over 3% at the start of the year to a peak of over 7% in the fourth quarter. A rebound in mortgage rates in early 2023, when they fell to around 6%, revived home sales, but the renewed rise in mortgage rates once again put significant pressure on home sales, which was exacerbated by the fact that a larger-than-normal growth rate of households bought homes over the past few years, and despite stories of pandemic buying regret, for the most part, these homeowners remain happy in their homes.

<This is consistent with what Realtor.com visitors report when asked why they don't plan to sell their homes. The number one reason homeowners don't try to sell is that they don't need to; worrying about losing their current low-interest mortgage is the most important financial concern cited. Our current forecast is for home sales in 2023 to reach just over 4 million, down 19% from a total of 5 million in 2022.

With many of the same forces at play heading into 2024, housing will continue to cool, with sales expected to remain essentially unchanged at just over 4 million. Although mortgage rates are expected to decline throughout the year, continued high costs will mean that existing homeowners will have a very high threshold for deciding to move, with many likely choosing to stay in their homes. Necessary moves - job changes, family status changes, downsizing to a more affordable market - are likely to drive home sales in 2024.

Fewer homes for sale

Even before the coronavirus pandemic, housing inventory was on a long, slow downward trajectory. Insufficient construction means that the supply of homes has not kept pace with household formation and has left little slack in the housing market. Both homeowner and rental vacancies remain below historical averages. In contrast to the current home market, which remains sluggish, builders have managed to catch up, with construction remaining near pre-pandemic highs for single-family and reaching record levels for multifamily. <Despite this, the lack of excess capacity in housing has been painfully evident in the market for homes for sale. The number of existing homes on the market has dwindled. With home sales activity continuing at a relatively low pace, the number of unsold homes on the market is also expected to remain low. Although mortgage rates are expected to start declining, they are expected to exceed 6.5% this year. This means that the foreclosure effect, where the gap between market mortgage rates and the mortgage rates enjoyed by current homeowners on their outstanding mortgages, will continue to be a factor. Nearly two-thirds of outstanding mortgages have an interest rate of less than 4% and more than 90% have an interest rate of less than 6%.

Limited decline in rental prices as supply increases

After nearly a full year of double-digit rental growth between mid-2021 and mid-2022, the rental market has finally slowed down, as evidenced by the year-on-year decline that began in May 2023. In 2024, we expect that the rental market will closely resemble the dynamics seen in 2023, with the tug-of-war between supply and demand leading to a moderate annualized decline of -0.2% in the average asking rent.

New multifamily supply will continue to be a key element in shaping the 2024 rental market. In Q3 2023, the annualized pace of newly completed multifamily homes reached 385k units. Although absorption rates remained high in the second quarter, especially at lower price points, the rental vacancy rate rose to 6.6% in the third quarter. This rise in rental vacancies suggests that recent supply has exceeded demand, but context matters. After recent gains, the rental vacancy rate is on par with its pre-pandemic level in early 2020, and is still below its average of 7.2% from 2013 to 2019. Looking ahead, the strong construction pipeline - which reached a record level of units under construction this summer - is expected to continue to fuel rental supply growth in 2024 pushing vacant rentals back to their long-term average.

While the increase in rental supply is on par with its pre-pandemic level in early 2020, it is still below its average of 7.0% from 2013 to 2019.

While the increase in new multifamily supply gives tenants options, the sheer number of tenants will minimize the potential impact on prices. The average asking rent in 2024 is expected to fall to just below its level in 2023. Renting is expected to remain a more budget-friendly option than buying in the vast majority of markets, although house prices and mortgage rates are expected to fall, helping to depress the buying market slightly from record affordability.

Young renters who lack the benefit of historically high home equity to leverage into a home purchase will also continue to face housing market challenges. Specifically, with many Millennials at the age of first-time homebuyers and more of Generation Z approaching those years, the current housing landscape will likely keep these households in the rental market longer as they work to save more money for the growing generation. the down payment needed to buy their first home. This trend is expected to maintain strong demand for rental properties. Thus, we expect rental markets favored by young people, a list that includes a mix of affordable areas and tech-intensive labor markets in the South, Midwest, and West, to be rental markets to watch in 2024.

Expect mortgage rates and home prices to rise

With mortgage rates and home prices expected to rise in 2024, affordability will become a thing of the past, although as mentioned above, normalization will not be achieved within the year. This prediction hinges on the expectation that inflation will continue to fall, which would allow the recent declines in longer-term interest rates to continue. If inflation instead sees a sudden spike, this aspect of the forecast would change, and home sales could fall rather than stabilize.

<In our 2023 forecast, we noted the risk of geopolitical instability on trade and energy costs as something to watch. In addition to Russia's ongoing war in Ukraine, instability in the Middle East has not only taken a catastrophic human toll, but both conflicts have the potential to affect the economic outlook in ways that cannot be fully anticipated.

What will the market look like for homebuyers, especially first-time buyers?

First-time homebuyers will continue to face a challenging housing market in 2024, but there are some green shoots. The standard income quota required to buy a median-priced home is expected to begin to fall as mortgage rates decline, home prices fall, and incomes grow. In 2023, we expect that over the course of the entire year, the average monthly cost to finance a typical home for sale will be more than $2,240, an increase of nearly 20% over mortgage payments in 2022, and nearly double the typical payment for buyers in 2023. 2020. This represents roughly 37% of typical household income. In 2024, with modest price declines and lower mortgage rates, the typical purchase cost is expected to drop to just under $2,200, which would amount to nearly 35% of income. Although well above the historical average, it is an important first step in a buyer-friendly direction.

How can homebuyers prepare?

Homebuyers can prepare for this year's housing market by being financially prepared. Buyers can use a home affordability calculator, like this one from Realtor.com to translate their income and savings into a home's price range. Shoppers can test the results by clicking through the mortgage calculator to look at different down payment, price and loan scenarios to see how their monthly costs will be affected. Working with a lender can help potential buyers explore different loan products such as FHA or VA loans that may offer lower mortgage interest rates or more flexible credit criteria.

Although prices are expected to drop in 2024, housing costs are still high, and a down payment can be a significant barrier for buyers. Recent research shows that the typical down payment on a home has reached a record high of $30,000. To make putting together a down payment easier, shoppers can access information about down payment assistance options at Realtor.com/fairhousing and in the monthly payment section of the home listing pages. Furthermore, home shoppers can explore loan products geared toward helping families access homeownership by enabling down payments as low as 3.5% for FHA and 0% for VA loans.

Moreover, home shoppers can explore loan products geared toward helping families access homeownership by enabling down payments as low as 3.5% for FHA and 0% for VA loans.

How will the market be for home sellers?

Home sellers are likely to face more competition from builders than other sellers in 2024. As builders continue to maintain supply and increasingly adapt to market conditions, they are increasingly focused on lower-priced homes and willing to make price adjustments when needed. As a result, prospective sellers will want to consider the landscape of new construction housing in their markets and any implications for pricing and marketing before putting their homes up for sale.

How will the market be for renters?

In 2024, renting is expected to remain a more cost-effective option than buying in the short term although we expect the advantage of renting to diminish as house prices and mortgage rates fall.

However, for those considering pursuing long-term equity through homeownership, it is essential to not only stay alert to market trends but also to carefully consider the intended length of stay in their next home. When home prices rise rapidly, as they have during the pandemic, the high cost of buying a home may break even with the cost of renting in less than 3 years. In general, it takes longer to reach the break-even point, usually within a time frame of 5 to 7 years. More importantly, when home prices fall and rents also fall, as expected in 2024, it may take longer to recoup some of the higher costs of buying a home. Individuals using Realtor.com's rent vs. buy calculator can accurately assess the costs and benefits associated with renting vs. buying over time and how many years current market trends indicate it will take before buying is the best financial decision. This comprehensive tool can provide tailored insights into a household's rent vs. buy decision and enable consumers to consider not only the optimal choice for the current month but also how the trade-offs will evolve over several years.