Although high mortgage rates, elevated home prices and limited housing inventory have crippled the 2023 housing market, the outlook for 2024 is brighter, according to Lawrence Yun, chief economist with the National Association of Realtors (NAR).
Yun took the stage on Tuesday at NAR NXT, the trade group’s annual conference in Anaheim, California. He began his presentation during the “Residential Economic Issues and Trends Forum” by analyzing the data points that impacted 2023 real estate conditions before diving into forecasts for next year.
Yun explained how high rates and home prices, and a low supply of housing inventory are “making the dream of homeownership difficult for Americans.”
However, as mortgage rates stabilize and home sellers adapt, “Existing-home sales will rise by 15% next year,” Yun said.
By the end of 2023, year-over-year home sales will likely fall by 18% after a 17% decline from 2021 to 2022, Yun noted.
The latest GDP report, Consumer Price Index findings and softer labor data seem to point towards a mild improvement in the economy, but Yun still sees some worrying signs to watch for in the new year. Business spending is down due to soaring borrowing costs, and as the labor market cools, there’s a risk that the unemployment rate will climb, Yun said.
Fed funds rates, 30-year mortgage rates ‘have likely crested’
“I believe we’ve already reached the peak in terms of interest rates,” Yun told the audience. “The question is when are rates going to come down?”
“The 10-year Treasury yield is at 4.4%, which historically means mortgage rates could be at 6.4%, but they are much higher,” Yun said. “The bond market is forcing the Fed to pivot.”
According to Yun’s forecast, mortgage rates will fall to between 6% and 7% by spring 2024. He also expects more sellers to enter the market, as they adapt to prolonged higher rates.
Meanwhile, he counts on home builders to ramp up new construction, as the existing-home inventory shortage lifts demand for new homes. In 2023, new-home sales are up 5% year to date, Yun said.
To close out his presentation, Yun touted the ongoing value of homeownership despite market headwinds.
“Consumers are happy with real estate service. The market is fiercely competitive with so many business models among which to choose – from do it yourselfers to iBuyers to discount brokerages, to full service and rebates,” he said.
“American homebuyers have benefitted immensely from such wide-ranging choices in real estate services. Moreover, homeowners have accumulated sizable wealth over time.”