The housing market’s headline news this year has been the affordability challenge brought on by mortgage rates reaching 20-year highs. Looking ahead to 2024, Zillow home buyers will have a slightly easier time. Increased home affordability in 2024 is a definite possibility — but it won’t be a huge improvement.
Buying a home will remain expensive. Many who buy will turn to homes that need some work and do-it-yourself upgrades and repairs will keep new homeowners busy.
“I expect the beginning of a long healing process to kick off in the housing market next year,” said Skylar Olsen, Zillow chief economist. “We know there are a huge number of households in prime home-buying ages waiting for the winds to turn in their favor. While still presenting challenges, the market will be better for buyers, with more homes to choose from and improved affordability. Recent deliveries should keep rent growth down, and concessions high in that market, too. This is our breather year.”
More homes will hit the market soon
“Higher for longer” is the key refrain regarding mortgage rates as Zillow economists look ahead to the next year in housing. It’s becoming clear that high mortgage rates have some staying power. Zillow economists expect more homeowners who locked in long-term payments when rates were near all-time lows to list their homes for sale. Especially as they grow weary of waiting for the historically low rates of 2021 to return.
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A very small pool of homes for sale has kept competition fairly stiff for most of this year. With mortgage rates rising over the past two years, homeowners have been reluctant to sell, opting instead to hold onto the ultralow interest rate on their current mortgage. Many of those homeowners will have their eye on a home with a bigger backyard, an extra bedroom or in their preferred neighborhood across town. Zillow predicts more of these homeowners will end their holdout for lower rates and go ahead with moving.
Home-buying costs will level off
A typical home buyer in October would have spent more than 40% of their earnings on their mortgage payment. This is an all-time high according to Zillow data, which stretches back to the 1990s. While affordability will undoubtedly remain the top concern for potential home buyers in 2024, there is reason to expect those challenges to ease just a bit.
The cost of buying a home looks likely to level off next year, with the possibility of costs falling if mortgage rates do. That would give time for wages and buyers’ savings to grow — welcome news after the rapid rise in housing costs over the past two years.
The new starter home will be a single-family rental
Though expects some improvement in home-buying affordability, many people will still be priced out. The median renter is now 41 years old, up from 37 in 2000, and the types of rentals they’re interested in has likely shifted.
Zillow predicts demand — and prices — for single-family rentals will continue to increase next year as families look for a more affordable option for enjoying amenities like a private backyard or a home that doesn’t share walls with neighbors.
One possible path to more single-family rentals could lie in homeowners deciding to turn their home into an investment property and rent it out, rather than selling it when they move. The ultralow mortgage rates held by many existing homeowners make this option possible.
More markets will follow New York City’s lead
Throughout much of the pandemic, and even before, suburban rent prices were growing faster than rents in urban neighborhoods. While the gap has narrowed, suburban rents continue to outpace urban rents in most major markets, specifically, 33 of the 50 largest metro areas.
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In New York City, data shows demand is surging for rentals in commutable areas with easy access to Downtown or Midtown Manhattan. While areas farther from these office-laden neighborhoods are seeing relatively less demand. StreetEasy experts predict a strong year for Manhattan demand in 2024, and Zillow foresees more markets following suit, with rental demand surging near downtown centers.
Renters looking for a place near downtown will likely have more options with this year’s multifamily-construction boom, which means a huge number of new homes have hit the market.
Traditional home buyers will compete with flippers
Typically the target of home flippers, homes that need a little work before they qualify for “dream home” status will see increased interest from buyers looking to move in.
Inventory has been far below normal for a while, and though Zillow economists predict more homes will hit the market in 2024, inventory will remain much lower than pre-pandemic norms. Faced with limited choices, buyers will be willing to overlook small flaws, such as an outdated bathroom or kitchen.
The higher cost of buying a home today makes a flip harder to pencil out, so buyers may face less competition from flippers than they might have in previous years. Even with less chance of being subject to a bidding war, these homes won’t come cheap, so expect buyers to frequent their local hardware stores as they work on DIY home improvements.