Elevated mortgage rates, high home prices and limited housing inventory are making the dream of homeownership difficult for Americans, according to Lawrence Yun, chief economist for the National Association of Realtors.
Yun analyzed the current state of the U.S. residential real estate market and shared his 2024 outlook on Nov. 14 during the Residential Economic Issues and Trends Forum at the association's annual NAR NXT, The Realtor Experience conference in Anaheim.
He explained that high mortgage rates and low housing inventory have dominated 2023, saying, "Twenty-year-high mortgage rates have held off homebuyers. There's also a lack of housing inventory to sell, which means fewer opportunities for sales in the marketplace."
Now the good news: The U.S. Bureau of Labor Statistics released data earlier this week showing that inflation has cooled more than expected. The Consumer Price Index, which is used to measure the average change of prices over time, rose 3.2% for the 12 months that ended in October. This is down from 3.7% in September, and coming in at the lowest annual rate in the past two years.
With inflation making a gradual decline, the Federal Reserve should adjust its monetary tightening posture, Yun said.
“I believe we’ve already hit the peak with interest rates,” Yun said. “The question is: When is it going to come down?”
Yun forecasts that mortgage rates, which have reached as high as 8% this year, will drop to between 6-7% by the spring buying season and anticipates that more sellers will enter the market.
He said lack of housing inventory continues to be what’s edging up home prices.
“Lack of inventory is supporting home prices but creating difficulty for first-time buyers,” he said.
According to the association's newly released "2023 Profile of Home Buyers and Sellers" annual survey that provides insight into detailed home-buying behavior for transactions nationwide made between July 2022 and June 2023, first-time buyers made up 32% of all homebuyers, up from last year's historic low of 26%. While this is an increase, it is well below the 38% annual average recorded since 1981.
In addition, the latest survey indicates that the national median household income for typical homebuyers jumped to $107,000, up from $88,000 the previous year. Notably, today's first-time buyers had household incomes nearly $25,000 above last year's. These findings underscore the increasing income required to purchase a home, according to the report.
Yun noted new housing construction and other numerous trends point to possible pent-up seller activity that could trigger more houses to become available on the market.
There are sellers who won’t be able to delay moving much longer due to life changes, he said. This would include growing families, couples marrying or divorcing and seniors ready to downsize or relocate to live closer to their families.
According to the national survey, there were 3 million marriages, 1.5 million divorces and 7 million people turning 65 years old. Additionally, there were 4 million deaths, 4 million net new jobs and 50 million job switches -- all reasons homeowners will need to sell sooner than later, Yun said.
He forecasts that existing home sales will rise by 15% next year.
"People will begin to say, ‘life goes on,'" Yun said. "Listings will steadily show up, and new home sales will continue to do well."
Silicon Valley Association of Realtors (SILVAR) is a professional trade organization representing 5,000 Realtors and affiliate members engaged in the real estate business on the Peninsula and in the South Bay. SILVAR promotes the highest ethical standards of real estate practice, serves as an advocate for homeownership and homeowners, and represents the interests of property owners in Silicon Valley.
The term Realtor is a registered collective membership mark which identifies a real estate professional who is a member of the National Association of Realtors and who subscribes to its strict Code of Ethics.
There's more ...
Looking for more real estate stories? Read Embarcadero Media's latest Real Estate headlines.