When Will Home Prices Be Affordable Again? – Forbes Advisor

Thanks primarily to an unexpected rise in mortgage rates, which exacerbated affordability challenges, the spring home-buying season has yet to spring to life.

Though newly built home sales are thriving, sales of existing homes, which comprise the lion’s share of the housing market, have stagnated. On the bright side, tepid demand for existing homes is helping boost the country’s low housing supply.

Meanwhile, the home purchasing process edged closer to a colossal shift. In April, a judge preliminarily approved the landmark $418 million real estate broker commissions settlement centering on the National Association of Realtors (NAR). The new rules mandating significant changes to the industry’s long-standing buying and selling model will begin in July.

Housing Market Forecast for 2024

The further rise of already-elevated mortgage rates and home prices in the past few weeks amid a prolonged inventory shortage has dampened the hopes of many prospective buyers.

Yet, despite ongoing affordability hurdles, Fannie Mae forecasts an increase in home sales transactions compared to last year. Experts also anticipate a slower increase in home prices over the course of 2024 compared to recent years. However, price fluctuations will continue to vary regionally and depend strongly on local market supply.

Meanwhile, U.S. home prices posted an annual 6.4% gain in February—the eighth consecutive month of year-over-year increases and the fastest annual rate since November 2022—according to the latest S&P CoreLogic Case-Shiller Home Price Index. Home prices are at or near all-time highs.

Despite the recent run-up in mortgage rates, the month-over-month home price index rose by a robust 0.6%. By comparison, month-over-month index gains averaged 0.2% between 2015 and 2019, according to Selma Hepp, chief economist at CoreLogic.

Will the Housing Market Finally Recover in 2024?

For a housing recovery to occur, several conditions must unfold.

“For the best possible outcome, we’d first need to see inventories of homes for sale turn considerably higher,” says Keith Gumbinger, vice president at online mortgage company HSH.com. “This additional inventory, in turn, would ease the upward pressure on home prices, leveling them off or perhaps helping them to settle back somewhat from peak or near-peak levels.”

And, of course, mortgage rates would need to cool off, but the timeline for that development seems to be getting more protracted now that rates have blown past 7%. For the week ending May 23, the 30-year fixed mortgage was 6.94%, according to Freddie Mac.

However, when mortgage rates finally go on the descent, Gumbinger says don’t hope they cool too quickly. Rapidly falling rates could create a surge of demand that wipes away any inventory gains, causing home prices to rebound.

“Better that rate reductions happen at a metered pace, incrementally improving buyer opportunities over a stretch of time, rather than all at once,” Gumbinger says.

He adds that mortgage rates returning to a more “normal” upper 4% to lower 5% range would also help the housing market, over time, return to 2014-2019 levels. Yet, Gumbinger predicts it could be a while before we return to those rates.

Nonetheless, Kuba Jewgieniew, CEO of Realty ONE Group, a real estate brokerage company, is optimistic about a recovery this year.

“[W]e’re definitely looking forward to a better housing market in 2024 as interest rates start to settle around 6% or even lower,” says Jewgieniew

NAR Settlement Rocks the Residential Real Estate Industry

Following years of litigation, the NAR has agreed to pay $418 million to settle a series of high-profile antitrust lawsuits filed in 2019 on behalf of home sellers. A federal judge granted preliminary approval for the settlement in April.

The plaintiffs claimed that the leading national trade association for real estate brokers and agents “conspired to require home sellers to pay the broker representing the buyer of their homes in violation of federal antitrust law.”

Though a final approval hearing is not scheduled until November, required practice changes laid out in the agreement will go into effect beginning August 17, according to a NAR press release.

The settlement requires NAR to enact new rules, including prohibiting offers of broker compensation on multiple listing services (MLS), the private databases that allow local real estate brokers to publish and share information about residential property listings.

Moreover, sellers will no longer be responsible for paying buyer broker commissions—upending an accepted practice that has been in place for years—and real estate agents participating in the MLS must establish written representation agreements with buyers.

NAR denies any wrongdoing and maintains that its current policies benefit buyers and sellers. The organization believes it’s not liable for seller claims related to broker commissions, stating that it has never set commissions and that commissions have always been negotiable.

If you sold a home in the past ten years, you may be eligible for a small piece of this settlement pie. Visit realestatecommissionlitigation.com for more information about filing a claim.

How Will the New Rules Impact the Buying and Selling Process?

Per NAR’s settlement terms, the costs associated with buying and selling a home are set to change dramatically.

“The primary things that will change are the decoupling of the seller commission and the buyer commission in the MLS,” says Rita Gibbs, a Realtor at Realty One Group Integrity in Tucson. “It’s gonna cause some chaos.”

While sellers will no longer be able to offer broker compensation in the MLS, there’s no rule prohibiting off-MLS negotiations. Because of this, Gibbs suspects buyers and sellers will continue offering broker compensation off the MLS.

The Department of Justice confirmed it will permit listing brokers to display compensation details on their websites. However, buyer agents will need to undergo the tedious task of visiting countless broker websites to find who’s offering what.

Michael Gorkowski, a Virginia-based real estate agent with Compass, is also trying to figure out how to manage the potential ruling.

“We often work with buyers for many months and sometimes years before they find exactly what they’re looking for,” Gorkowski says. “So in a case where a seller isn’t offering a co-broker commission, we will have to negotiate that the buyer pays an agreed-upon commission prior to starting their search.”

The Changes Will Impact These Home Buyers Most

“In the short term, it is absolutely going to injure buyers, especially FHA and VA buyers,” Gibbs says. “With rare exception, these buyers are not in a position to pay for their own agent.”

Gibbs says that if sellers don’t offer compensation, many buyers who can’t otherwise afford to pay a broker will choose to go unrepresented.

Gorkowski notes that veterans taking out VA loans face a unique challenge under the new rules. “[P]er the VA requirements, buyers cannot pay so it must be negotiated with the seller for now.”

As a result, NAR is calling on the VA to revise its policies prohibiting VA buyers from paying broker commissions. Meanwhile, the VA is discussing foreseen issues with the Department of Justice to ensure the new practices do not disadvantage VA home buyers.

Even so, there is skepticism that the federal government will be able to implement changes by the July deadline.

Gibbs and Gorkowski are among the many agents especially concerned about first-time home buyers. After July, first-time will be required to sign a buyer-broker agreement stating that they will compensate their broker—but Gibbs says many won’t have the means to do so.

In this situation, agents would likely only show buyers homes where sellers are offering compensation.

“This is a very troubling situation,” Gorkowski says.

Housing Inventory Forecast for 2024

Many homeowners remain “locked in” at ultra-low mortgage rates, unwilling to exchange for a higher rate in a high-priced housing market. Consequently, demand continues to outpace housing supply—and likely will for a while—even as more homeowners begin to sell.

“I don’t expect to see a meaningful increase in the supply of existing homes for sale until mortgage rates are back down in the low 5% range, so probably not in 2024,” says Rick Sharga, founder and CEO of CJ Patrick Company, a market intelligence and business advisory firm.

Housing stock remains near historic lows—especially entry-level supply—which has propped up demand and sustained ultra-high home prices. Here’s what the latest home values look like around the country.

The most recent National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI), which tracks builder sentiment, remained flat at 51 in April. A reading of 50 or above means more builders see good conditions ahead for new construction.

Meanwhile, permits for new single-family homes dipped to their lowest rate since October, slumping 5.7% in March, according to the latest data from the U.S. Census Bureau and U.S. Department of Housing and Urban Development (HUD). This decline breaks a 13-month streak of increases.

Single‐family housing starts also sagged compared to the previous month, dropping 12.4%.

Builders know the underlying demand for homes exists, as reflected in their outlook. Still, these latest readings suggest that stubborn inflation and persistently high rates could dampen the creation of new homes.

Residential Real Estate Stats: Existing, New and Pending Home Sales

In March, new home sales continued to blossom despite elevated mortgage rates, while existing-home sales withered.

Here’s what the latest home sales data has to say.

Existing-Home Sales

Existing-home sales wilted at the onset of the spring home-buying season, declining 4.3% from February, according to the latest report from NAR. Sales sagged 3.7% from a year ago.

Despite the pent-up demand, interest rates stalling in the high-6% range for most of March likely dampened sales.

“Prospective home buyers face a challenging—and confusing—housing market,” said Dr. Lisa Sturtevant, chief economist at Bright MLS, in an emailed statement.

An upside to fewer sales is that existing inventory rose 4.7% month-over-month, logging 1.07 million unsold homes at the end of March. Still, only 3.2 months of inventory remain at the current sales pace. Most experts consider a balanced market between four and six months.

Meanwhile, prices continue to soar to record highs. The median price for an existing home rose to $393,500, a 4.8% jump from a year ago. This is the ninth consecutive month of yearly price increases and a March median home price record.

New Home Sales

New home sales recovered from their recent slip, hitting a six-month high.

Sales of newly constructed single-family houses surged 8.8% compared to February and 8.3% from a year ago, according to the latest U.S. Census Bureau and HUD data.

“The new home market has been an outsized share of the housing inventory, so homebuilders have been able to attract prospective home buyers who are seeing very limited supply in the existing home market,” said Sturtevant.

Though builders aren’t cutting home prices, Sturtevant notes that some continue to offer rate buydowns and concessions to lure buyers. On top of that, declining new home prices are coming amid a recent trend of builders introducing smaller and more affordable homes to the market.

The median price for a newly built home in March was $430,700 compared to $438,900 a year ago.

Pending Home Sales

NAR’s Pending Homes Sales Index posted a solid gain in March, rising 3.4%, even as mortgage rates stalled in the upper 6% range by the end of the month. Pending transactions were up marginally year-over-year.

A pending home sale marks the point in the purchase transaction when the buyer and seller agree on price and terms; it’s considered a leading indicator of a future closed sale. This increase marks two consecutive months of positive pending sales data, signaling a potential rebound in existing sales in the coming months.

Surging Mortgage Rates Throw Cold Water on Spring Home-Buying Hopes

If you feel frozen out of the housing market this spring, you’re not alone.

Nearly 40% of homeowners reported they could not afford to purchase the home they live in if they were to buy it in the current market, according to a Redfin report.

Thanks to a one-two punch of surging mortgage rates and home prices, a borrower who wants to buy a median-priced $420,000 home today, financing with a 30-year mortgage, now faces a monthly payment of $2,864, the highest average ever recorded.

In comparison, someone who purchased a home at the same price in 2019 with a 30-year mortgage at 4% is paying $2,210 monthly—or about $650 less.

“Homebuyer affordability conditions remain volatile,” said Edward Seiler, associate vice president of Housing Economics at Mortgage Bankers Association and executive director of Research Institute for Housing America, in a press release. “These factors will keep mortgage rates at elevated levels for the near future, sidelining some prospective buyers from entering the housing market.”

But, there are some encouraging signs ahead. Recent trends show more homes being listed than sold, leading experts at Fannie Mae to predict a gradual build in inventory this year and slowing home price growth.

Pro Tips for Buyers and Sellers

Here are some expert tips to increase your chances for an optimal outcome in this tight housing market.

Pro Tips for Buying in Today’s Real Estate Market

Hannah Jones, a senior economic research analyst at Realtor.com, offers this expert advice to aspiring buyers:

• Know your budget. Instead of focusing on price, figure out how much you can afford as a monthly payment. Your monthly housing payment is influenced by the price of the home, your down payment, mortgage rate, loan term, home insurance and property taxes.
• Be flexible about home size and location. Perhaps your budget is sufficient for a small home in your perfect neighborhood, or a larger, newer home further out. Understanding your priorities and having some flexibility can help you move quickly when a suitable home enters the market.
• Keep an eye on the market where you hope to buy. Determine the area’s available inventory and price levels. Also, pay attention to how quickly homes sell. Not only will you be tuned in when something great hits the market, you can feel more confident moving forward with purchasing a well-priced home. A real estate agent can help with this.
• Don’t be discouraged. Purchasing a home is one of the largest financial decisions you’ll ever make. Approaching the market confidently, armed with good information and grounded expectations will take you far. Don’t let the hustle of the market convince you to buy something that’s not in your budget, or not right for your lifestyle.

Pro Tips for Selling in Today’s Real Estate Market

Gary Ashton, founder of The Ashton Real Estate Group of RE/MAX Advantage, has this expert advice for sellers:

• Research comparable home prices in your area. Sellers need to have the most up-to-date pricing intel on comparable homes selling in their market. Know the market competition and price the home competitively. In addition, understand that in some price points it’s a buyer’s market—you’ll need to be prepared to make some concessions.
• Make sure your home is in top-notch shape. Homes need to be in great condition to compete and create a strong “online curb appeal.” Well-maintained homes and attractive front yards are major features that buyers look for.
• Work with a local real estate agent. A real estate agent or team with a strong local marketing presence and access to major real estate portals can offer significant value and help you land a great deal.
• Don’t put off issues that require attention. Prepare the home by making any repairs or improvements. Removing any objections that buyers may see helps focus the buyer on the positive attributes of the home.

Will the Housing Market Crash in 2024?

As already-high home prices continue trending upward, you may be concerned that we’re in a bubble ready to pop. However, the likelihood of a housing market crash—a rapid drop in unsustainably high home prices due to waning demand—remains low for 2024.

“[T]he record low supply of houses on the market protects against a market crash,” says Tom Hutchens, executive vice president of production at Angel Oak Mortgage Solutions, a non-QM lender.

Moreover, experts point out that today’s homeowners stand on much more secure footing than those coming out of the 2008 financial crisis, with many borrowers having substantial home equity.

“In 2024, I expect we’ll see home appreciation take a step back but not plummet,” says Orphe Divounguy, senior macroeconomist at Zillow Home Loans.

This outlook aligns with what other housing market watchers expect.

“Comerica forecasts that national house prices will rise 2.9% in 2024,” said Bill Adams, chief economist at Comerica Bank, in an emailed statement.

Divounguy also notes that several factors, including Millennials entering their prime home-buying years, wage growth and financial wealth are tailwinds that will sustain housing demand in 2024.

Even so, with fewer homes selling, Dan Hnatkovskyy, co-founder and CEO of NewHomesMate, a marketplace for new construction homes, sees a price collapse within the realm of possibility, especially in markets where real estate investors scooped up numerous properties.

“If something pushes that over the edge, the consequences could be severe,” said Hnatkovskyy, in an emailed statement.

Will Foreclosures Increase in 2024?

Lenders began foreclosures on 32,878 properties in March, down less than 1% from the previous month and 10% from a year ago, according to Attom. However, quarterly data showed a 2% increase in foreclosure starts compared to the previous quarter and a 4% increase from a year ago.

Quarterly data also showed real estate-owned properties, or REOs, increasing by 7% from the previous quarter, though they are down markedly from the same quarter a year ago, falling by 20%. REOs are homes that didn’t sell at foreclosure auctions and were taken over by lenders.

“Q1 2024’s foreclosure data reveals a market in transition, with slight increases in filings and starts, alongside a notable decrease in REO properties,” said Rob Barber, CEO at Attom, in a report.

The three states with the highest number of REOs in the first quarter of 2024 were Michigan (1,049), California (845) and Pennsylvania (838).

Despite quarterly increases in foreclosure activity, experts generally don’t expect to see a wave of foreclosures in 2024.

“Foreclosure activity is still only at about 60% of pre-pandemic levels … and isn’t likely to be back to 2019 numbers until sometime in mid-to-late 2024,” says Sharga.

The biggest reasons for this, Sharga explains, are the strength of the economy—we’re still seeing low employment and steady wage growth—along with excellent loan quality.

Massive home price growth in homeowner equity over the past few years has also helped reduce foreclosures.

Sharga says that some 80% of today’s homeowners have more than 20% equity in their property. So, while there may be more foreclosure starts in 2024—due in part to Covid-era mortgage relief programs phasing out—foreclosure auctions and lender repossessions should remain below 2019 levels.

When Will Be the Best Time To Buy a Home in 2024?

Buying a house—in any market—is a highly personal decision. Because homes represent the largest single purchase most people will make in their lifetime, it’s crucial to be in a solid financial position before diving in.

Use a mortgage calculator to estimate your monthly housing costs based on your down. But if you’re trying to predict what might happen next year, experts say this is probably not the best home-buying strategy.

“The housing market—like so many other markets—is almost impossible to time,“ Divounguy says. “The best time for prospective buyers is when they find a home that they like, that meets their family’s current and foreseeable needs and that they can afford.”

Gumbinger agrees it’s hard to tell would-be homeowners to wait for better conditions.

“More often, it seems the case that home prices generally keep rising, so the goalposts for amassing a down payment keep moving, and there’s no guarantee that tomorrow’s conditions will be all that much better in the aggregate than today’s.”

Divounguy says “getting on the housing ladder” is worthwhile to begin building equity and net worth.

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