Summary: One forecast predicted that U.S. home prices would drop in 2024, while several others have predicted moderate price growth next year. We expect house values to rise gradually in 2024, in most parts of the U.S., a home-price outlook shared by several forecasters.
The U.S. real estate market experienced some extreme conditions over the past few years, as the COVID pandemic pushed home prices to record highs. Many local housing markets across the country saw unprecedented price gains of more than 20% in a single year.
But starting in 2022, home prices began to drop in many cities across the U.S. This was part of a nationwide real estate cooldown that has since been well documented. That downward trend continued into 2023, with house values eroding even further.
Now that the dust has settled, a lot of people are looking ahead to next year and wondering the same thing: Will U.S. home prices drop in 2024, as they have over the past 12 months?
Our view: Barring some unforeseen economic crisis, house values will likely rise through the latter months of this year and into 2024. There are several factors supporting this outlook, including limited supply within the housing market.
Home Price Trends Over the Past 48 Years
For many years, conventional wisdom has told us that real estate is one of the best investments a person can make. This was based on the notion that home prices in the U.S. always rise over time, making it one of the safest places to put your money.
We now know that notion is false.
U.S. home prices fell slightly during the 1982 recession, dropped significantly during the Great Recession of 2007 – 2009, and dipped again during the post-COVID market cooldown of 2022.
You can see all of these trends in the chart below, which shows the house price index for the U.S. going back 48 years. Notice the downward trend from 2007 to 2009, and the more subtle dip on the far-right side of the chart. (The shallow decline of the early 1980s is harder to see.)
So it’s more accurate to say that U.S. home prices almost always rise, with occasional downturns brought on by extreme events. Still, that’s a pretty good track record for an asset, from an investment standpoint.
See all of those gray vertical bars in the chart above? Those represent economic recessions. And as you can see, home prices in the U.S. either held steady or kept rising through most of them. Even at times when the broader economy was staggering, house values prices kept climbing.
I tell you this to create some necessary perspective. Home prices in the U.S. declined during the second half of 2022 and into early 2023. But that was most likely a short-term blip on the radar, and it now appears to be coming to an end.
Which brings us back to the question at hand. Will home prices drop in 2024?
Here are some recent forecasts that paint two different scenarios, followed by our own thoughts and expectations for house values in 2024.
Freddie Mac: Home Prices Will Drop in 2024
The economic research team from Freddie Mac recently issued a “cautious” outlook for home prices, predicting that they will drop slightly during 2024. This was part of a broader economic report that said “the U.S. economy is stalling” but has thus far avoided a recession.
To quote the June 2023 Freddie Mac report:
“While home prices have been positive in most markets, it is still too early to separate the signal from the noise fully, and employment is likely to weaken, so we maintain a cautious outlook for prices. Our official corporate forecast calls for house prices to fall 2.9% over twelve months through Q1 of next year  and an additional 1.3% over the subsequent twelve months.”
I think the reason they’re being cautious is because there are still some concerns within the broader economy. For instance, as of last month, the New York Fed estimated there was a 67% chance of a U.S. recession within the next 12 months.
As we saw in the previous chart, an economic recession doesn’t always lead to a drop in U.S. home prices. But it does increase the likelihood of such a decline, especially when combined with other negative factors like rising unemployment.
If a recession does occur within the next year or so (which is far from certain), it would likely have a negligible impact on home prices in the U.S. As of summer 2023, tight inventory conditions and steady demand from buyers are putting upward pressure on house values nationwide. And those conditions will likely persist into 2024.
Zillow: Home Prices Will Rise in 2024
Housing analysts from Zillow have an entirely different view from the Freddie Mac outlook presented above. They recently predicted that home prices in the U.S. would rise by more than 6% during the 12-month period from June 2023 to June 2024.
By their estimate, the median home value in the United States rose by around 1.2% over the past year (through July 2023). The median price point was around $349,000 when this article was published.
The next chart shows the “Zillow Home Value Index” going back nearly 10 years. You can see how house prices began to rise more rapidly during the pandemic, before reaching a peak during the summer of 2022.
You can also see how home prices dipped slightly after hitting that all-time high, and (more telling) how they’ve turned upward again over the past few months. This most recent upturn offers some insight into what home prices might do in 2024, shaping the long-range outlook.
The decline in prices from late 2022 to early 2023 was part of a real estate market “correction” brought on by the overheated growth of the pandemic years. During the 18 months prior to that shallow decline, U.S. house values skyrocketed at an unsustainable pace due to a COVID-fueled surge in home-buying activity.
Now, the market is settling back down again.
What’s Boosting House Values in 2023?
To recap: Many analysts do not expect home prices to drop in 2024, but to rise at a more moderate pace in keeping with historical norms.
But why? What factors are these forecasters seeing that might suggest a market rebound is imminent? A recent report from the financial services firm Morningstar listed some of the reasons why U.S. home prices continue to show strength.
As their researchers wrote:
“Several factors today support continued [home] price resiliency, mainly the rate lock-in effect, over a decade of conservative lending standards (which reduces foreclosure risk), and undersupplied U.S. housing stock (we estimate about a 2.5 million-unit shortfall). However, we believe that buyer exuberance during the pandemic, aided by ultralow borrowing costs, pushed home prices to an unmaintainable level in some markets.”
There are several important factors mentioned in the above quote, and they all have an impact on home prices across the U.S. They could also prevent house values from dropping in 2024, despite other weaknesses in the economy. So let’s unpack them one at a time…
1. The “rate lock-in effect”
This term refers to a recent trend where homeowners are choosing to stay in their homes when they otherwise might have moved.
Mortgage rates nearly doubled during 2022, rising from 3.22% to a 15-year high of 7.08%. As a result, some homeowners feel that they are “locked in” to their current mortgage situation, since moving could significantly increase their monthly payments.
This hesitancy has contributed to a decline in housing market inventory during 2023, which in turn makes the market more competitive for buyers.
2. Conservative lending standards
Risky mortgage loans and lax lending standards helped cause the housing market crash of 2008. When unqualified borrowers take on mortgage loans in large numbers, it can lead to a nationwide foreclosure crisis and “meltdown,” like the one we experienced 16 years ago.
But the mortgage industry has changed since then, requiring higher standards for borrowers and shying away from risky mortgage products. This reduces the overall level of and contributes to market stability.
3. Undersupplied U.S. housing stock
I touched on inventory decline under item #1 above. This is another factor that’s currently causing home prices to turn north again.
You probably already know that housing market inventory levels plummeted during the COVID years, as the country experienced a huge migratory shift. But you might not know that inventory levels climbed steadily through most of 2022, as the housing market cooled down again.
Unfortunately, that growth didn’t last for very long. Most of last year’s supply gains have been erased since the start of 2023, partly due to the mortgage rate lock-in effect mentioned earlier.
The bottom line to all of this is that we have several factors putting upward pressure on home prices nationwide, and far fewer headwinds. Given the current supply-and-demand situation — and considering historical patterns going back decades — additional growth seems likely.
So, will U.S. home prices drop or rise in 2024? Pick your prediction!
Most real estate experts and industry analysts predict that house values will resume rising through the rest of this year and into next, but at a more moderate pace. We lean toward the bullish side as well, anticipating continue price growth ahead. Freddie Mac, on the other hand, offered a more “cautious” home-price forecast predicting a slight decline in 2024.
Disclaimer: This report contains forecasts and other forward-looking views relating to the housing market and broader economy. They are the equivalent of an educated guess and should be treated as such. No one can predict future home-price trends with total accuracy.
Brandon Cornett is a veteran real estate market analyst, reporter, and creator of the Home Buying Institute. He has been covering the U.S. real estate market for more than 15 years. About the author