2024's Housing Landscape: 5 Key Trends to Watch
Lisa Mailhot | January 11, 2024
Buyers
Lisa Mailhot | January 11, 2024
Buyers
2024 has arrived, and with it comes a fresh set of hopes for a more favorable housing market. The past year posed significant challenges, including record-low home sales, a severe housing shortage, and the highest mortgage rates in over two decades. As we embark on this new year, it's crucial to understand the key housing trends that will shape the real estate landscape in 2024.
For over a decade, the United States has grappled with a significant housing shortage, with more buyers than available homes. Recent estimates suggest that the U.S. needs approximately 3.2 million more homes to meet the existing demand. Part of this issue stems from a construction lag, as builders slowed their pace after the 2008 housing crash to avoid overstocked inventories. Supply and labor shortages, along with higher interest rates, have further increased building costs.
The resale market is no exception, with existing homes for sale hitting a 13-year low last October. Mortgage rates exceeding 8% for the first time in over two decades contributed to this decline. Additionally, many homeowners are reluctant to sell their homes due to their fixed low-rate mortgages, exacerbating the housing supply shortage.
In recent years, homebuyers enjoyed historically low average 30-year fixed mortgage rates of below 5%. However, 2022 brought a significant change as mortgage rates soared. The Federal Reserve initiated interest rate hikes in March 2022 to address rampant inflation caused by near-zero interest rates during the COVID-19 pandemic.
Now, as inflation has approached the Fed's target rate of 2%, interest rates have remained steady since July, signaling a potential "soft landing." Mortgage rates have started to come down since their peak in October 2023, with the average 30-year fixed rate at 6.62% as of January 4, 2024. While the future of mortgage rates remains uncertain, some indicators suggest a possible decline.
Millennials, America's largest generation, are entering their prime homebuying years (ages 25 to 45). Despite facing challenges in the housing market over the past few years, many millennials are determined to achieve homeownership. A recent survey revealed that nearly three-quarters of Americans consider owning a home a sign of prosperity.
As millennials continue to pursue their homeownership dreams, the demand for homes, especially starter homes, remains high. This demand, coupled with limited supply, contributes to a competitive housing market.
Low housing supply and pent-up demand are expected to keep home prices elevated in 2024. As of Q4 2023, the median home sales price stood at $431,000. This poses challenges for first-time homebuyers, especially when considering the added expense of higher mortgage rates. Home affordability is currently at its lowest since 1984.
To afford a median-priced home at the current average 30-year fixed rate of 6.62%, a household would need an income of nearly $100,000 (assuming one-third of monthly income is allocated to mortgage payments). Unfortunately, wage growth has not kept pace with rising home prices.
Despite the challenges, there are silver linings for real estate investors in 2024. Investors can capitalize on trends such as the rise of accessory dwelling units (ADUs) in response to zoning regulations, the increasing popularity of remote work and coworking spaces, and the growth of real estate crowdfunding and private equity funds.
These opportunities offer investors creative strategies to navigate the evolving real estate landscape in 2024 and beyond.
2024 presents both challenges and opportunities in the housing market. If you are considering a move to Orange County or exploring real estate investment possibilities, staying informed about these trends is crucial. To learn more and discuss your specific real estate goals, let's connect. Together, we can navigate the dynamic real estate landscape of Orange County and beyond.
Reference: Nead, Nate. "5 Housing Trends to Watch in 2024." Fund, Last Updated: Jan 10, 2024.
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