Mortgage Rates:
After reaching a 28-year low in 2023, mortgage rates are expected to slowly retreat. This shift from climbing to falling mortgage rates improves housing affordability but reduces the urgency for home shoppers.
Home Prices: Prices are anticipated to adjust slightly lower as the number of for-sale homes continues to dwindle. While home prices grew at a double-digit annual clip in recent years, the return to pricing in line with financing costs is expected to begin in 2024.
Rent Growth: The median asking rent in 2024 is expected to drop only slightly below its 2023 level. Looking Back on the Volatile Housing Market In 2022, the housing market experienced extreme highs and lows. Initially, home prices surged due to historically low mortgage rates and high demand.
The average sales price of a new home reached $543,600 and peaked midway through the year. However, by the end of 2022, limited supply, high demand, and rising inflation rates led to a 23% decrease in home salesAd1. Despite the cooling market, home prices remained elevated throughout the year due to an ongoing housing shortage.
Factors like costly materials, labor shortages, and supply chain issues contributed to this shortage. Additionally, fears of another recession discouraged homeowners from selling. Real estate investors, accounting for over 13% of residential sales in 2021, further impacted housing supply by turning homes into profit-generating assetsAd1.
Industry Shifts and Their Impact on the 2023 Rental Market The movement in the housing market naturally influences the rental market. Here are some key points to consider:
Rent Growth: While the housing market cools down, rent growth is expected to remain slow in construction-heavy markets. However, smaller cities outside the Sun Belt may offer higher cap rates for rental properties2. Vacancy Rates: Rental vacancies were 6.6% for the entire fourth quarter of 2023, indicating market equilibrium. findings.
- Mortgage Rates and Home Sales:
- After falling to a 28-year low in 2023, existing home sales are expected to gradually rebound as mortgage rates decline.
- Builders’ ability to buy down mortgage rates and pent-up housing demand will help maintain elevated market share for newly built homes.
- As lending rates fall and more homes are listed for sale, true price discovery will occur for existing homes.
- Home Prices:
- Home prices, which fell 0.8% year-over-year through December 2023, are forecast to rebound by 1.8% to $390,000 by year-end.
- The lack of supply has contributed to home prices holding onto their gains.
- Rent Stabilization:
- Rents are expected to stabilize due to added supply and will more closely track inflation rates.
- Rental vacanicies 6.6% 2023
- Industry Shifts and Rental Market Impact:
- While the housing market cools down, rent growth may remain slow in construction-heavy markets.
- Smaller cities outside the Sun Belt could offer higher cap rates for rental properties.
In summary, as mortgage rates gradually decline and supply dynamics shift, the housing market will continue to evolve. Keep an eye on these trends as you navigate the real estate landscape