After experiencing three tumultuous years, many real estate professionals in the U.S. are now wondering what 2024 might bring.
Will 2024 be a good year for the real estate agents? What will the housing market be like next year? And what trends do agents need to know about, in order to succeed?
Real Estate Industry Outlook for 2024
No one can predict future industry trends with complete accuracy. But we can look at current market conditions to make an educated guess as to what things might be like for real estate agents in 2024.
Here’s an outlook for the real estate industry in 2024, based on where we are right now.
1. Many homeowners reluctant to list their properties
Through much of 2023, homeowners who might have otherwise considered selling their homes were reluctant to do so. The main reason has to do with mortgage rates.
As you probably already know, mortgage rates more than doubled during 2022. Because of this, a lot of people who purchased homes over the past few years currently have much lower mortgage rates than today’s average.
This creates a quandary. A person who sells their home and buys another one would likely end up taking on a much higher rate, possibly increasing their monthly housing costs as well. And according to a spring 2023 Realtor.com survey, a lot of homeowners simply aren’t willing to do that.
A quote from the Realtor.com survey:
“the vast majority (86%) of those planning to sell their home in the next 12 months are also planning to buy a new home. And because most of these sellers will be taking on a new mortgage, this creates a major affordability hurdle. In fact, 82% of these seller-buyers feel “locked in” by their currently low mortgage rate. As a result, more than half of seller-buyers (56%) who are planning to sell in the next 12 months said they are waiting for rates to come down, while 25% need to sell soon for personal reasons.”
Granted, Realtor.com only surveyed 2,286 adults. So these results don’t necessarily represent the general attitude of homeowners nationwide. But it does highlight a very real predicament that many would-be sellers are grappling with right now.
Housing market analysts have adopted the term “mortgage rate lock-in effect” to describe this situation. In fact, it has become something of a buzzword over the past few months. Do a Google search for that phrase, and you’ll see what I mean.
Of course, not all homeowners are being held hostage by their low mortgage rates. Some people don’t have a choice as to whether or not they sell their homes and relocate. But for those who do have a choice in the matter, today’s higher mortgage rates could essentially disincentivize them from selling.
This trend could continue to affect real estate agents — and the industry as a whole — through the rest of this year and into 2024. That’s because mortgage rates aren’t expected to drop significantly anytime soon. In fact, additional rate hikes conducted by the Federal Reserve could put upward pressure on mortgage rates and other types of borrowing costs.
When this article was published, during the second week of August 2023, mortgage rates had just risen for the third week in a row. The average rate for a 30-year fixed mortgage loan (the most popular loan option among home buyers in the U.S.) has nearly reached 7% and could cross that threshold in the very near future.
2. Continued inventory shortage, partly due to trend #1
We talked about the so-called mortgage rate lock-in effect, and how it has made a lot of homeowners a lot more hesitant to sell their homes. That’s just one of several factors that will prolong the ongoing inventory shortage, a trend that will affect the real estate industry well into 2024.
Here are three factors that have created and perpetuated the current inventory shortage:
Insufficient new home construction
The U.S. population has more than doubled since 1950. But the residential construction industry has not kept up with the ever-increasing demand for homes, especially within the past 20 years or so.
According to Robert Dietz, chief economist for the National Association of Home Builders: “You’d have to be building more than 1.1 million homes a year to meaningfully reduce the deficit.”
And we are nowhere that level of construction.
This ongoing trend will affect the real estate industry in 2024, possibly by limiting the number of home sales. It also increases competition among buyers — at least among those who can still afford to make a purchase.
Inventory depletion during the pandemic
Housing market inventory levels plummeted during the pandemic, as millions of Americans relocated and purchased homes.
In 2021, the Federal Reserve published a report entitled “Housing Market Tightness During COVID-19: Increased Demand or Reduced Supply?”
According to that report:
“This analysis indicates that the housing market has tightened primarily because of a surge in demand. Consequently, the relaxation of any pandemic-caused supply-side constraints will likely do little to cool the market. New demand has exceeded even pre-pandemic levels of supply, and the gap is too large to be realistically filled by new construction in the short term.”
Reluctance among would-be sellers
We’ve talked about this factor already, so we don’t need to belabor the point. The short version is that higher mortgage rates have led to a general decline in housing market inventory, as would-be sellers hang onto their low mortgage rates.
We’ve heard a lot about this last trend, but mostly from economists and housing analysts. Now, let’s look at it from a current homeowner’s point of view.
Here is one of the countless Reddit posts that illustrate this predicament. A homeowner wrote:
“My rate is locked in at 2.25%. I don’t want to lose that nice low rate but I am ready (have been ready) to sell and buy something slightly more remote with a little more land. Do I wait until rates fall or the market goes down on houses. I don’t know what to do.”
What to do, indeed. This is the mindset among many homeowners right now, and it’s going to affect real estate agents and the broader industry well into 2024.
3. Home prices rising in most cities, partly due to trend #2
In most parts of the U.S., home prices peaked during the summer of 2022 and began to decline after that. This was partly due to fast-rising mortgage rates, which reduced buyer demand and weakened prices.
But we now seem to be past the “bottom” of this downturn in prices. According to Zillow, the median home value for the U.S. rose for the past five months in a row. When this article was published, in mid-August of 2023, the median price was at $348,000, about 1% higher than a year earlier.
At first glance, that 1% increase might not seem significant. But it marks a turning point from the steadily declining prices we were seeing at the start of this year.
This is something that will affect the real estate industry and individual agents well into 2024. Many forecasters have predicted that home prices will keep climbing over the coming months, but at a more moderate and sustainable pace.
This could affect real estate agents in a couple of ways:
For one thing, rising prices might cause some buyers to shy away from the market, especially when considered alongside today’s higher mortgage rates. Buyers toward the bottom of the pricing spectrum, in particular, might not have the budget to keep up with rising prices in their areas and might exit the market altogether.
Other buyers, who can still afford to make a purchase, might experience a newfound sense of urgency over the coming months. The logic being: I need to buy a home sooner rather than later, to avoid further price hikes.
In short, rising prices could result in buyer’s agents having fewer, but more motivated, clients in 2024. Rising house values could also provide reassurance to buyers, showing that the real estate market is “okay” and that buying a home is still a good investment.
On the selling side, rising prices might add to the reluctance among sellers mentioned under point #1 above. For those sellers who are already hesitant to list their homes because of their low mortgage rates, rising prices will give them even more reason to stay put. The logic being: the longer I wait to sell my home, the more money I can sell it for.
Overall, rising prices will have a mixed effect on the real estate industry in 2024. Some buyers will be more eager to snatch up properties, sensing that we have passed the bottom of the market and now entering a period of price growth. Some sellers, on the other, might be more inclined to stay on the sidelines as their equity grows.
4. High inflation could dampen market activity in 2024
Inflation plays a role in this real estate industry outlook for 2024. Overall, inflation will likely have a cooling effect on the market, by reducing the purchasing power (and motivation) of would-be buyers.
Historically, higher inflation tends to reduce demand within the housing market, and for obvious reasons. It’s harder for buyers to save up for a down payment, closing costs, and other expenses when they’re spending more money on gas, food, and other necessities.
The Federal Reserve tends to raise the short-term federal funds rate in order to combat inflation. They’ve done this several times in the recent past, with additional rate hikes possible in the fall and in 2024. Indirectly, this could lead to even higher mortgage rates and reduced purchasing power among home buyers.
The Federal Reserve wants to see inflation fall back down to their “target range” of around 2%. But most economists don’t expect that to happen anytime soon.
According to a mid-year forecast from the investment management company Vanguard:
“Vanguard foresees developed market core inflation (which excludes food and energy prices) continuing to fall through the end of 2023 from recent generational highs. But we expect it will only be late 2024 or even 2025 before inflation falls back to central banks’ targets, which are mostly around 2%.”
At the Federal Reserve’s post-meeting press conference in July, Fed Chair Jerome Powell stated:
“It is certainly possible that we would raise [rates] again at the September meeting, if the data warranted. And I would also say it’s possible that we would choose to hold steady at that meeting.”
How will high inflation affect real estate agents in 2024? And how might it affect the real estate industry as whole?
For one thing, it will probably result in there being fewer qualified buyers seeking homes.
Currently, low inventory levels are giving sellers an advantage in the marketplace. But high inflation and rising home prices could change all of that, by causing a reduction on the demand side of the equation. With fewer offers coming in, sellers would have to be more flexible in terms of the price and other terms.
But again, all of these trends can vary based on the location. Some housing markets (such as Austin, Texas) are still in a downturn phase right now, with falling prices and hesitant buyers casting a wary glance at the market. But in most other parts of the country, real estate markets have already bottomed out, stabilized, and settled into a new normal.
5. A more level playing field between buyers and sellers
As we’ve seen, some trends that have occurred over the past year could benefit sellers in 2024. Inventory declines over the past eight months, for instance, could help sellers attract more offers.
But there are some real estate market headwinds as well, with higher housing costs topping the list. High inflation, along with higher mortgage rates and home prices, could reduce buyer demand going into 2024. This might balance out the low-inventory factor mentioned above.
We probably won’t see another extreme seller’s market anytime soon — at least not like the one we experienced in 2021. But because of low supply levels, 2024 probably won’t be a strong buyer’s market either.
While market conditions can vary regionally, many cities could have a more balanced (but still unusual) real estate scene next year.
In 2024, real estate agents will need to monitor and analyze local market conditions to create an effective playbook. What are prices doing in your area? How long are homes staying on the market, and how has this changed over the past 12 months? What’s the overall affordability situation for buyers — and how has that changed?
These are kinds of research points real estate agents should focus on in 2024, to better understand local market conditions and adapt accordingly.
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