The real estate market is a complex place to be. Many factors cause this market to fluctuate on a regular basis. Interest rates, housing supply and demand, and the economy's situation as a whole are some things that will always be there. Besides, the intrusion of millennial buyers and pandemics can also highly affect prices. Regardless of the situation, one common query always seems to appear: when will real estate prices drop?
It is not clear when and where prices will go down for sure. But still, predictions have always existed to give people a close call. Keep reading if you want to know about such predictions. By the end of this informative piece, you will get a better picture of when, why, and if real estate prices are going to fall in 2024.
Why Are Housing Prices High?
High housing prices are a big drawback to the American dream. But if you understand the factors that are causing this surge, you will get a clearer view. Let’s look into some of them:
Low Housing Inventory
Fewer houses on the market means more people want to buy the ones that are already there. Because of this, home prices go up. And this is exactly what happened in 2023.
According to the National Association of Realtors (NAR), at the end of July 2023, the total housing inventory in the country was 1.11 million units. And guess what? That’s 13.6% less than how it was in July 2022! So it’s only natural that the prices will go up.
Lower Interest Rates
The next prominent reason home prices have increased over time, especially in recent years, is low interest rates.
Lower interest rates make it cheaper to finance a home, which makes more people want to buy property. This rise in demand almost always causes home prices to go up overall.
Higher Construction Costs
Let me make it clear how construction costs can affect real estate prices. A lot of the time, we have to bring in building supplies from other countries because they are not made in the U.S. The prices of these imports have changed over time because of events in politics and trade deals. Construction costs in the housing market have gone up because of this.
Due to tariffs, many materials cost more than they did in the past. And higher construction costs only add to housing prices.
In A Seller’s Market
There are always two sides to the housing market:
- Buyers
- Sellers
A seller's market happens when there are not many homes for sale and a lot of people want to buy them. Prices for homes usually go up in seller's markets where there is a lot of competition.
Millennials Have Entered the Housing Market
Millennials are becoming a big group of people who buy homes, according to NAR. According to a report from 2023, 28% of all home buyers are millennials, who are between the ages of 24 and 42.
NAR also found that 70% of younger millennials (ages 24–32) who bought a home were first-time buyers, as were 46% of older millennials (ages 33–42). First-time buyers are more common in these age groups than in any other. You name it—they are ready to pay more and take out a bigger loan so they do not miss out on the house they really want.
As more millennials buy homes, the demand for already-built homes goes up, and that impacts the price.
The COVID-19 Pandemic
The COVID-19 pandemic also made home prices go up. Why? According to the Federal Reserve Bank of Dallas, many people's household income went up because of stimulus checks and better unemployment benefits. With extra money in their pockets, a lot of people bought homes during the pandemic, which drove up demand and prices.
Mortgage rates, on the other hand, stayed low for most of the pandemic. This low rate meant that buyers could borrow more money to buy bigger homes. The few homes that were available were in even higher demand because of this.
Also, during the pandemic, more people started working from home, and a lot of them decided they needed more space. Some even moved to the suburbs, where there was less traffic and more space between people. This also made more people want to buy homes.
When Will Real Estate Prices Drop In 2024?
There are a lot of things that affect the housing market, such as interest rates, supply and demand, and the state of the economy as a whole. Because of this, it is hard to say for sure when and where prices will drop.
In 2023, the housing market made many people who wanted to buy a home feel down. Mortgage rates went up and hit a high of 7.79%. In the third quarter, the median home price was more than $400,000.
But for some people, 2024 might be a better year to buy a house. Industry experts think that prices will go down in some parts of the country but will likely stay high or even go up in some markets.
For example, Morgan Stanley thinks that home prices could drop by as much as 5% in 2024. According to Realtor.com, home prices will start to go down in 2024, dropping 1.7% throughout the year.
However, the Zillow Home Value Index (ZHVI) gives a different prediction. It’s a popular metric of the typical home value and market changes across a given region and housing type. According to Zillow, ZHVI will go up by 4.9% from August 2023 to August 2024. It indicates that real estate prices will rise during this period.
In the end, it’s all just predictions. Nothing is certain. We will need to wait and see what actually happens in the market.
What Could Cause House Prices to Go Down?
In general, home prices have gone up over time. But that does not mean there are no exceptions. For example, during the Great Recession, home prices started to fall in late 2007.
What might make home prices go down? Let us look at a few reasons.
High Mortgage Interest Rates
When mortgage interest rates grow, monthly mortgage payments get higher for people who are financing the purchase of a home. This surge can price some buyers out of the market. If fewer people are able to buy homes, demand may go down, which could cause prices to drop.
An Oversupply of Homes for Sale
If there are more goods on the market than people want, sellers will have to lower their prices to get people to buy them. If such a situation arises, the housing market will be in a buyer's market instead of a seller's, causing prices to drop.
The Economy Entering A Recession
If the U.S. economy goes into a long-term slump, home prices may also go down. When people lose their jobs or their incomes drop, they can not afford to buy a home. It lowers the demand for homes in the housing market.
Housing Market Recession: What Is It?
When discussing the drop in real estate prices, we should also talk about the housing market recession. So, what is a housing market recession?
The housing market recession is when the sale of real estate is lowering for a six-month stretch. If we look back to 2023, have we seen that happening? The answer is no.
In fact, according to the NAR, the sales grew from May to June and again from July to August. So you can say that the market has been steady.
However, the recession has never been a big concern regarding real estate prices. That’s because the prices will remain the same even if there is a market recession and the sale becomes unstable.
If falling home sales mean there are too many houses for sale and not enough buyers, then you should be worried about the market. That would cause house prices to drop and hurt the economy as a whole.
Experts Say Real Estate Prices Should Hold Strong
The way the housing market is operating right now suggests a clear slowdown, but this is not like other real estate downturns. It is true that prices are high. Still, the number of homes for sale and the number of sales have both dropped significantly.
Homeowners who took advantage of 3 percent mortgage rates several years ago are choosing not to sell. That’s because the current rates are more than double that amount. The homeowners’ unwillingness is causing the supply to shrink.
As a result, any market correction will be very different from the severe collapse that happened during the Great Recession. During that period, home prices dropped by 50% in some markets.
According to experts specializing in housing trends, two opposing forces are influencing the housing market. Higher mortgage rates push prices down, while strong demand from new households and a lack of inventory push prices up. Therefore, these factors should currently cancel each other out, keeping prices pretty stable across the country.
Pro Tips For Buying In Today’s Real Estate Market
The financial situation is the most important factor regarding a real estate purchase. Nevertheless, it’s always good to have some expert tips in mind. Here are a few:
- If you are thinking about switching jobs or working from home, move to a location where prices are low for homes.
- Ready to act fast? Review your finances, gather documents, shop multiple lenders, and improve your credit score.
- Stay ahead of the competition by checking prices and listings.
- Check your monthly payment, including taxes, and explore how it can fit into your budget.
Pro Tips For Selling In Today’s Real Estate Market
The market isn’t just about buying; selling is equally important. Bear these exciting tips in mind if you’re looking for a good sale:
- Work with a realtor to price correctly, boost buyer competition, and sell faster.
- When showcasing online, add curb appeal to your home.
- Get your house ready to sell as soon as possible.
- If you want more page views and saves, add a 3-D virtual tour or an interactive floor plan to your listings.
FAQ
Q. Will Housing Prices Drop Anytime Soon?
Ans. Most likely not, or not by much. For the first time in more than ten years, home prices did go down year-over-year for a few months in early 2023. However, the drop was not very significant, and prices have since shot up sharply, reaching all-time highs. Chief financial analysts say it is more likely that prices will stay the same rather than drop sharply.
Q. What Will Happen If The Housing Market Crashes?
Ans. A lot of people have built up a lot of equity in their homes. So, most experts do not think the housing market will crash in 2024. The main problem is a lack of affordable housing. It is hard for first-time homebuyers to buy a house now because of high interest rates and inflated home values.
Q. Is It Smart To Buy Real Estate Before A Recession?
Ans. You can buy a house whenever you want, as long as you have the money to do so. It does not matter when you buy it, as long as you plan to live there through good and bad economic times. For short-term investments, buying real estate at its peak before a recession is riskier than buying it later.
Q. Is Now A Good Time To Buy A House?
Ans. Actually, the market should not affect your choice of buying a house. You can buy a home now if you are financially ready, even if inventory is low and interest rates are high. If you are not financially prepared, even with plenty of inventory and low rates, it is not a good time.
Conclusion
While it’s not possible to give an exact estimate of when real estate prices will drop, you can still buy a home. Indeed, the best time to buy is when you are ready, whether due to a job transfer, a growing family, or a desire for change. Make sure you talk to a good real estate agent to figure out how to go about buying a house.
This is exactly where Excelsior Realty will come into play. With our years of experience and knowledge of local housing inventory and market conditions, we can offer the best purchase solution. Our team can help you negotiate a sale, determine your home's market value, or create marketing plans. Contact us today.
