DSNews The homepage of the servicing industry
The housing market has experienced wild highs and lows in the past two years, but analysts expect things to flatten out in the coming months.
In the wake of the COVID-19 pandemic, the U.S. housing market experienced unprecedented activity.
The American home took on the additional role of office, school, and more, while record-low mortgage rates led to the fastest annual house price appreciation, the lowest days on market, and a near-record pace of sales in the 2020-2021.
That frenetic year was followed by fast-rising inflation and aggressive monetary tightening by the Federal Reserve in 2023.
With the steep rise in mortgage rates, shortage of home inventory, and affordability issues, home sales declined this year to decade-low levels.
That’s based on market reports from First American Financial Corporation’s Chief Economist Mark Fleming, who predicts a “flat stretch” in 2024.
“If the 2020-2021 housing market was too hot, then the 2023 market was probably too cold, but 2024 won’t yet be just right,” Fleming said in his forecast for the coming year.
Market outlook depends heavily on the economy and inflation, Fleming said. If the economy and labor market continue to cool, but not collapse, and if the Fed’s own projections are correct, he says, “we may even see modest rate cuts.” Mortgage rates will remain high, he believes, in the 6.5-to-7.5% range.
Inventory remains low, Fleming said. The U.S. is about a million homes short, a deficit that he expects to continue in 2024 since more than 90% of current homeowners are locked in at previous years’ mortgage rates.
“Only when more homeowners decide to sell, and then buy again, will housing supply and the pace of sales return to anything resembling normal,” Fleming said.
About 50% of millennials, Americans ages 27-42, are homeowners. While reduced affordability and limited inventory may lead the other half to delay homebuying in the short term, the demographic’s “shadow demand” will continue to trickle into the housing market in 2024, Fleming predicts, reasoning that millennials’ higher educational attainment is translating into greater earning power, which is a strong predictor of future homeownership.
According to First American Data & Analytics’ most recent survey, October 2023 Home Price Index, house prices in September set a new record for the seventh straight month. The report showed house price growth and total months’ supply have an inverse relationship.
If this relationship repeats itself, Fleming said, there will be continued upward pressure on prices to grow faster than normal in 2024.
Fleming’s remarks and the full home price index can be read each month at blog.firstam.com.
