Will 2024 be the year the housing market gets slightly less tough?
Will 2024 be the year the housing market gets slightly less tough?
The housing market is ending 2023 in a pretty weird and challenging place. While inflation in general is continuing to moderate, home price inflation is not.
The Case-Shiller National Home Price Index shot up again in October, rising 4.8% year over year — an acceleration from the month before. The median price of an existing home in November was $387,600, according to the National Association of Realtors. Meanwhile, a median new home will set you back almost $50,000 more. All of which is to say, it’s a really tough market for would-be homebuyers.
But it’s not like being a renter has been a cakewalk either. Rents are up by nearly 7% year over year, according to the Labor Department’s Consumer Price Index for November. That helped to drive overall inflation higher.
But there may be a bit of light at the end of the tunnel coming next year.
First, we have to understand what’s been driving home prices so high: The answer, in large part, is really high mortgage costs. The average 30-year fixed-rate mortgage soared as the Federal Reserve raised interest rates, peaking at 7.8% earlier this fall before falling back a bit more recently.
Meanwhile, “there are a lot of people who are locked in in sub-4% mortgages,” said Guy Cecala of Inside Mortgage Finance. “There’s almost a generation who feels that’s where mortgage rates should be.”
And these homeowners — which are most homeowners — are really reluctant to sell, per Gary Schlossberg at the Wells Fargo Investment Institute.
“It’s been the spike in mortgage rates that’s discouraged existing homeowners from trading up and assuming a mortgage that’s several percentage points higher. So that sticker-shock in effect is freezing the market, freezing supply,” he said.
So homeowners are sticking in their homes, but demand is strong from would-be homebuyers. And that’s pushing prices higher and making homeownership increasingly less affordable, explained Chris Mayer at Columbia Business School.
“Single-family houses are starting to seem like a luxury good, whereas to rent an apartment is becoming relatively more affordable,” he said.
That’s one bright spot in the housing picture, at the very least: Rent inflation is now easing.
One reason? “There are about a million apartments under construction right now,” said Robert Dietz at the National Association of Home Builders. “It’s roughly near the highest total we’ve seen since 1973.”
That’s going to raise vacancy rates and make apartments more affordable, said Kate Terhune at online marketplace Rent. “Data from November shows national rent averages sitting just under $2,000, down by over 2% since last year.”
A lot of the new apartment buildings are high end. “I saw one rental property offering Teslas to rent out for the day,” she said. “There is dog-washing units, there’s child care on site.”
Still, Terhune added that the additional supply of luxury units will help free up apartments at the lower end of the market.
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