Will home prices go down in 2024?

In 2022, prospective homebuyers faced an uphill battle as interest rates surged, making homeownership seemingly out of reach for many. The National Association of Realtors reported a staggering 49% increase in monthly mortgage payments for first-time buyers over the course of just one year. Additionally, the decade-long trend of rising median home prices continued, reaching an all-time high of $410,200 by June 2023. The question on many minds is whether home prices will ever come back down to a more reasonable level. Let’s delve into the factors driving these prices and explore whether now is the right time to buy or if patience might be the wiser choice.

Factors Influencing Housing Prices:

1. Mortgage Rates: The interest rate on a home loan significantly impacts the long-term cost of ownership. By late July 2023, the average interest rate for a 30-year fixed-rate mortgage had climbed to 6.98%. Higher rates translate to increased monthly payments, limiting purchasing power for potential buyers.
2. Available Inventory: Low inventory levels coupled with high buyer demand have allowed sellers to command higher prices. However, the market is gradually shifting towards balance, with a 7% increase in homes available for sale compared to the previous year.
3. Inflation: While inflation rates have eased, housing costs still play a significant role. The shelter category accounted for 70% of the overall increase in the Consumer Price Index for June, underscoring the continued financial strain on homebuyers.
4. Local Market Conditions: Real estate markets are inherently local, influenced by factors such as job opportunities, housing supply, and the overall cost of living.

Are Home Prices Dropping?

While some markets have seen price decreases, the declines have not necessarily improved affordability. For example, in San Francisco, single-family home prices fell over 16% from June 2022 to June 2023, yet the median price remained over $1.5 million.

Where Prices Are Declining the Most:

According to a July Redfin report, the following metro areas experienced the most significant year-over-year price drops:

• Austin: 8.8%
• Detroit: 6.4%
• Phoenix: 4.7%
• Las Vegas: 3.9%
• Sacramento: 3.8%

Should You Buy Now or Wait?

1. Consider Your Long-Term Plans: Given the closing costs associated with purchasing a home, it’s advisable to buy only if you plan to stay put long enough to recoup those expenses.
2. Monitor Mortgage Rates and Economic Trends: Keep an eye on mortgage rate fluctuations and assess the overall economic climate. Locking in a favorable rate or waiting for a more stable economic outlook can significantly impact your decision.
3. Evaluate Inventory Levels: Lower inventory levels lead to heightened competition and potentially higher prices. Waiting for a more balanced market may be prudent in areas with limited housing options.

Next Steps for Prospective Buyers:

• Conduct a thorough financial assessment, considering savings, existing debt, and credit score.
• Save for a down payment in a high-yield savings account while you wait.
• Get preapproved for a mortgage to establish a clear budget and demonstrate your seriousness as a buyer.
• Seek guidance from a local real estate agent to navigate the market effectively.

Conclusion:

In today’s real estate landscape, careful consideration of personal circumstances and market conditions is essential. While some markets are showing signs of price adjustments, affordability remains a challenge. By weighing these factors and taking proactive steps, prospective buyers can make informed decisions about when and where to enter the housing market.