When Will Housing Prices Drop? What You Need to Know About the 2024 Market

When Will Housing Prices Drop? What You Need to Know About the 2024 Market

Amid the cooling housing market, many potential buyers are eager to find out when housing prices will drop. Data from the National Association of Realtors (NAR) indicates a notable shift: the typical home for sale spent 44 days on the market in May 2024, marking a significant change from the rapid turnover seen during the housing boom of 2021-2022. If you're curious about when you might be able to purchase a home at a more affordable price, here's what you need to know about the current market trends and housing price forecasts.

 Are Housing Prices Declining?

In short, no. Despite the cooling market, housing prices are still on the rise in 2024 compared to last year. As of May, the national median sale price was up 0.3% from 2023, reaching $442,500. April data from the NAR highlighted an even more significant increase of 5.7%, with the median home price at $407,600.

The primary reason for sustained high prices is the ongoing shortage of available homes. New home construction is not keeping pace with demand, and many homeowners are reluctant to sell due to the attractive low mortgage rates they locked in early in the pandemic. With current mortgage interest rates hovering around 7%, moving to a new home can seem financially unappealing.

 What’s Keeping Prices High?

Several factors contribute to the persistently high prices:

1. Inventory Shortage: There are simply not enough homes on the market to meet demand. New constructions are lagging, and existing homeowners are hesitant to sell and lose their low-rate mortgages.

2. Mortgage Rates: The current 7% interest rates are a far cry from the ultra-low rates seen in the early days of the pandemic. This makes buying a new home more expensive and less appealing, further tightening the supply.

3. Affordability Issues: Even if homeowners wanted to sell, the high prices and mortgage rates make purchasing a new home costly. This keeps many potential sellers in their current homes, exacerbating the inventory shortage.

 When Will House Prices Drop?

Experts suggest that significant price drops are unlikely in 2024. For home prices to fall, we need a combination of lower interest rates and increased housing supply. Here’s a closer look at these factors:

1. Interest Rates: The Federal Reserve has indicated only one potential interest rate cut in 2024, down from the initially anticipated three. The timing of this cut, whether in September or December, remains uncertain. The outlook for 2025 is more optimistic, with the Fed predicting four rate cuts. However, given the unfulfilled forecasts for 2024, there is skepticism among consumers.

2. Increased Supply: Boosting housing supply requires action from both current homeowners and builders. Homeowners are more likely to sell if mortgage rates decrease, making a new purchase more affordable. Builders, on the other hand, are cautious due to the significant inventory they held during the pandemic. New home starts are down 0.6% from 2023, reflecting this cautious approach.

 What Should Eager Buyers Do?

While waiting for prices to drop may seem prudent, those eager to buy now have several strategies to consider:

1. Buy with Refinancing in Mind: Entering the market now with the intention to refinance later can be a smart move. Although you might afford a less expensive home initially, you can start building equity and refinance to a lower rate when interest rates eventually drop.

2. Start Small: Consider purchasing a smaller home, like a condo or a tiny house. These options can be more affordable than traditional single-family homes and provide an opportunity to build equity. When the market conditions improve, you can sell and upgrade to a larger home.

3. Explore Modular Homes: Modular homes, constructed off-site and assembled on your lot, can be 10% to 20% cheaper than traditional homes. They offer a cost-effective way to enter the housing market without compromising on quality.

 Conclusion

While the cooling housing market in 2024 offers a glimmer of hope for prospective buyers, significant price drops are unlikely this year. The combination of high mortgage rates, inventory shortages, and affordability issues keeps housing prices elevated. However, strategic buying and a focus on building equity through smaller or alternative home options can provide a pathway to homeownership. Patience and careful planning are key as we look ahead to a potentially more favorable market in 2025.