It’s been a really tough year for prospective home buyers. First, mortgages, like most other loans, have been expensive to sign. There’s also been a glaring shortage of available homes on the market, which has made it harder for buyers to find a suitable place for them.
And then there are home prices. You’d think higher mortgage rates would’ve driven buyers out of the market, thereby leading to a drop in home prices. But that’s not the case.
In October, the median existing home sale price was $391,800, according to the National Association of Realtors. That’s a 3.4% uptick from a year prior. October also represented the fourth consecutive month of annual home price gains.
If you’re trying to buy a home, you may be wondering what’s in store for 2024. But unfortunately, home prices might remain stubbornly high next year for one big reason.
A really frustrating holding pattern
Whenever there’s more demand for a given commodity than there is supply, its price tends to rise. That’s what’s been happening in the context of the housing market.
The market has lacked inventory on a national scale since the start of the year. And a big reason boils down to mortgage rates.
In 2020 and 2021, mortgage lenders dropped their rates, and buyer demand soared. Existing homeowners also rushed to refinance their mortgages to take advantage of those lower rates.
But because rates have climbed so substantially since then, the typical homeowner with a mortgage isn’t exactly rushing to move. Most people with a 3% mortgage don’t want to swap it for a mortgage in the 7% range. And they can’t afford to, either.
So basically, we’re stuck in a holding pattern. If mortgage rates remain high, people aren’t going to want to move. If people don’t list their homes, inventory will remain stagnant. And if inventory doesn’t pick up, home prices are unlikely to come down.
Now, mortgage rates might fall to some degree in 2024. But they’re unlikely to drop a lot anytime soon. Because of that, buyers may, unfortunately, be in for a continued streak of high housing prices in the new year.
Will you be able to afford a home in 2024?
Since home prices are likely to remain high in the new year, you’ll need to crunch your numbers carefully to see if you can afford to buy. And you should try to stick to the rule of not spending more than 30% of your take-home pay on housing.
That 30%, by the way, should include not just your monthly mortgage payments, but also, property taxes, homeowners insurance, and other predictable housing expenses, like HOA fees. Going beyond that 30% threshold could put you at risk of falling behind on your costs.
If it’s been a struggle to find an affordable home this year, one thing you may want to do in the new year is look for a home in January or February. There may indeed be even less inventory in the winter than the rest of the year, since winter isn’t a popular time to list a home. But it’s also a pretty unpopular time to buy a home.
So if you attempt to buy during the winter, you might have less competition. And that could give you more negotiating power so you’re able to potentially get a seller to come down on price.
It may be a while until homes become more affordable. You don’t have to give up on buying in 2024 per se, but know that housing market conditions may not end up being so much different from how they are today.
