The real estate market is an intricate system impacted by a multitude of variables. Predicting housing prices necessitates understanding the factors that influence prices, interest rates, and housing inventory levels. This blog post will delve into each of these components, providing you with insights into what drives changes in the housing market.

Home Prices in 2024

The price of housing is primarily influenced by supply and demand. However, several underlying factors influence housing supply and the demand for houses.

Location: The old adage "location, location, location" holds true. The proximity to city centers, quality of schools, availability of amenities, and crime rates can significantly impact house prices.

Economic Indicators: Housing prices often reflect the health of the broader economy. Employment rates, wage growth, and gross domestic product (GDP) can influence the capacity of individuals to buy homes, impacting demand and prices.

Interest Rates: Lower interest rates often lead to increased mortgage borrowing as the cost to borrow decreases. This heightened demand can drive up housing prices.

Government Policies: Policies and subsidies can make housing more or less affordable, thereby influencing prices. Tax credits, zoning laws, and regulations around lending can all impact the housing market.

Prediction for Home Prices in 2024

Given the factors above and also the interest rate policy (read more below), most economist, real estate experts and home builders believe that home prices will rise at least 2-7% nationally in the US in 2024.

While there is not widespread consensus around the specific amount that prices will rise, the Mortgage Bankers Association has cited price increases of 7%, while many economists have signaled a lower number of 2-3%. The National Association of Realtors has suggested that prices will increase by 5% in 2024.

It's safe to say that prices will not decrease from 2023 to 2024. This mostly due to an expectation of lower rates in 2024 and continued lack of inventory. According to Longforecast and Bank of America, 30 Year Mortgage Rate predictions for 2024 should be around 6.25% in January and decline to 4.50 by December.

How Interest Rates Will Impact Home Prices in 2024

Interest rates are another critical element in the real estate landscape. They significantly affect mortgage rates, influencing both buyers' ability to purchase and the overall demand for housing.

Monetary Policy: The central bank's monetary policy is the primary driver of interest rates. In the United States, the Federal Reserve adjusts the federal funds rate to control inflation and stabilize the economy, which in turn impacts mortgage interest rates.

Economic Growth: High GDP growth often leads to increased interest rates. As the economy grows, consumers borrow more, businesses expand, and the increased demand for credit often leads to higher interest rates.

Inflation: High inflation often leads to higher interest rates. Central banks aim to keep inflation within a target range and will adjust interest rates to do so.

Housing Inventory Levels Impact Home Prices

Housing inventory levels, or the number of homes available for sale, can greatly influence housing prices. High inventory usually leads to lower prices, while low inventory can lead to price increases.

New Construction: The rate of new construction significantly affects housing inventory. High rates of construction increase supply, while slow construction rates can limit inventory.

Demographics: Population trends can impact housing inventory. For example, aging populations may downsize or move into assisted living facilities, increasing the inventory of family-sized homes.

Economic Factors: The health of the economy can influence whether homeowners decide to sell or hold onto their properties. During economic downturns, many homeowners may choose to stay put, decreasing inventory levels.

Natural Disasters: Natural disasters can also affect housing inventory. Events like wildfires, floods, and hurricanes can destroy homes and decrease inventory in certain areas.

Understanding the complex relationships between these factors can help in predicting housing prices. However, the real estate market is influenced by numerous variables, and even experts can't predict changes with complete accuracy. Staying informed about these key factors and trends can help both buyers and sellers make more educated decisions in the housing market.