Although housing costs are projected to ease slightly in the new year, an industry economist warned that it won't be a "giant improvement" by any means, worsening the supply of existing homes.
According to Realtor.com's housing forecast for 2024, both mortgage rates and home prices will edge lower, helping to spark the beginning of an affordability turnaround in the new year.
Still, "home shoppers will still have to contend with relatively high home prices"
given that costs will be only slightly lower than they have been, Realtor.com Chief Economist Danielle Hale told FOX Business, adding that borrowers will see "modest relief from lower mortgage rates" which have sat above 6% since September 2022 and reached levels not seen in two decades over the past year.
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Realtor.com predicted in its forecast, published Wednesday, that the average mortgage rates will hover around 6.8% in 2024, falling to 6.5% by the end of the year. Home prices, meanwhile, are expected to drop about 1.7%, which is a nice change of pace after gradually increasing for more than a decade.
The typical monthly purchase cost for a median-priced home is estimated to be slightly under $2,200 a month, which is equivalent to 35% of the typical house income, according to the forecast. That's compared to 2023 when the typical for-sale home cost around $2,240, which ate up about 37% of household income.
The ease in prices will "give a foothold to some buyers trying to break into the market," but existing homeowners will still have a high threshold for deciding to move given the continuation of high costs, Hale continued.
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She projected a 14% drop in inventory year over year.
"With inventory expected to dwindle further as many homeowners choose to stay put rather than move, shoppers hoping to buy an existing home may find that it's hard to find exactly what they're looking for," she said.
However, while they do expect "a tighter supply of existing homes" Hale said they also anticipate "rental homes and new construction to act as a relief valve" because it will lessen the competition in the housing market.
"The rental market would likely become even more competitive except that a near-record level of rental supply is under construction, which will keep supply one step ahead of demand in the rental market," Hale said.
Hale noted the expectation is for mortgage rates to slip gradually as the economy softens and inflation is reined in. But if rates fall more than forecast, its likely that more homeowners will move, increasing both supply and demand.
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There are also wildcards that could affect the current forecast that economists are keeping an eye on such as geopolitical tensions and inflation.
Even as markets adjusted to Russia’s war in Ukraine and the conflict in the Middle East have the potential to affect the global economy in ways that can’t be anticipated, according to Realtor.com
If inflation doesn't subside, as projected, long-term interest rates could be raised. In turn, mortgagee rates could jump higher than anticipated, which would, as we have seen over the past year, deter potential sellers and buyers from the market and hinder home sales.
Realtor.com operated by the News Corp subsidiary Move, Inc.
