The real estate market is poised for a more favorable year in 2024, following a slight gain in existing home sales in November. Despite a streak of five consecutive monthly declines, the National Association of REALTORS® (NAR) reported a 0.8% increase in existing home sales, signaling a positive trend for the coming months. In this article, we will explore the factors contributing to this improvement and delve into the outlook for the real estate market in 2024.
Impact of Falling Borrowing Costs
One of the key drivers behind the anticipated growth in the real estate market is the decline in borrowing costs. Mortgage rates, which had reached nearly 8% earlier in the fall, averaged 6.95% last week. As borrowing costs fall, homebuyers are likely to be incentivized to enter the market, leading to an increase in home sales. NAR Chief Economist Lawrence Yun predicts that the figure for existing home sales will continue to grow as mortgage rates decrease.
Low Inventory and Rising Prices
Despite the positive outlook, homebuyers still face limited options due to low inventory. Many homeowners who locked in ultra-low mortgage rates in recent years are reluctant to sell, contributing to the shortage of available properties. As a result, home prices continue to rise, with a 4% increase year over year in November, reaching a median price of $387,600. Yun emphasizes that only a dramatic rise in supply can help dampen price appreciation.
Homebuilders Increasing Construction
To cater to the demand for housing, homebuilders are ramping up construction efforts. Single-family home construction saw a significant surge of 18% in November compared to the previous month and a remarkable 42% increase compared to the previous year. This increase in construction activity is driven by the need to attract more buyers and alleviate the shortage of available homes. Despite higher mortgage rates, new-home sales have risen this year, thanks to builders offering incentives such as lower interest rates and co-op commissions to buyer’s agents.
Forecasts for 2024
Homebuilders are optimistic about the real estate market in 2024. They forecast a 4% increase in single-family starts, banking on the expectation of lower mortgage rates and a drop in inflation in the new year. Robert Dietz, the chief economist of the National Association of Home Builders (NAHB), highlights the persistent housing shortage in most markets and suggests that another 30% rise in home construction could easily be absorbed in the marketplace, especially given the recent plunge in mortgage rates.
Resilient Buyers and Bidding Wars
Despite higher home prices and mortgage rates, buyers remain resilient and are willing to engage in bidding wars for limited inventory. In November, 62% of properties sold in less than a month, reflecting the speed at which the market is moving. First-time buyers are reemerging, accounting for 31% of existing-home sales in November, up from 28% the previous year. Additionally, cash sales have increased, with 27% of transactions in November being cash-based. Individual investors and second-home buyers comprise a significant portion of cash sales, further driving market activity.
Regional Market Performance
The real estate market performance varies across regions. In the Northeast, sales fell by 2.1% compared to October, reaching an annual rate of 470,000. However, the median price increased by 4.8% from the previous year, reaching $428,600. In the Midwest, sales increased by 1.1% from the previous month, reaching an annual rate of 940,000. The median price also rose by 4.9% from November 2022, amounting to $280,800. In the South, sales rose by 4.7% from October, reaching an annual rate of 1.77 million. However, existing-home sales decreased by 4.3% compared to the previous year. The median price in the South increased by 3.4% year over year, reaching $351,500. In the West, sales fell by 7.2% from the previous month, settling at an annual rate of 640,000. Sales in the West were down 8.6% from one year ago, while the median price increased by 5.3% to $603,200.
Top Markets to Watch in 2024
NAR has identified several markets in the South and Midwest as having the most pent-up homebuyer demand heading into 2024. The top 10 markets to watch include the metro areas of Austin and Dallas-Fort Worth, Texas; Dayton, Ohio; and Durham-Chapel Hill, N.C. These markets show promising potential for homebuyers and are expected to experience increased activity in the coming year.
The real estate market is poised for a more favorable year in 2024, as existing home sales rebounded in November. Falling borrowing costs, despite rising home prices, are expected to attract more buyers into the market. Homebuilders are increasing construction efforts to alleviate the shortage of available homes. With buyers showing resilience and engaging in bidding wars, the market remains active. Regional market performance varies, with the South and Midwest identified as the top markets to watch in 2024. Overall, the outlook for the real estate market in 2024 is optimistic, offering promising opportunities for homebuyers.