Housing Market Predictions For 2024: When Will Home Prices Be Affordable Again?

The housing market has yet to heat up this summer, but that may change soon.

The mortgage-rate roller coaster ride appears to be over. Recently, rates are behaving more like a water slide, moving downward with occasional plateaus and landing at their lowest levels in 15 months.

At the same time, inventory continues to loosen, slowing home price growth.

Despite these improvements, home prices continue to break records. Consequently, many buyers are likely waiting for further rate drops to improve affordability. However, experts caution against waiting too long.

Housing Market Forecast for 2024 and 2025

U.S. home prices posted a 5.4% annual gain, according to the latest S&P CoreLogic Case-Shiller Home Price Index three-month running average that ended in June.

Although this increase reflects a slowdown from the 5.9% annualized gain in May, the index still surpassed the record high set the previous month, indicating that home prices remain out of reach for many would-be buyers.

“The upward pressure on home prices is making this the most unaffordable housing market in history,” Lisa Sturtevant, chief economist at Bright MLS, said in an emailed statement.

Struvetant predicts that home prices will decline as we move into the later months of 2024 amid increasing inventory, but she sees no evidence of substantial declines in national home prices in 2024—or in 2025.

“Despite more leverage, buyers are still going to face a competitive market well into 2025 in most markets across the U.S. supply—while increasing—is still low by historical standards,” Sturtevant tells Forbes Advisor. “And there are few signs indicating a major drop in home prices.”

Though affordability obstacles persist, indicators suggest the market is beginning to tilt toward buyers to some extent. For instance, Zillow reports that roughly 25% of its listings saw price cuts in June. The last time the rate was this high for cuts this time of year was in 2018.

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Can We Expect a Housing Market Recovery in 2025?

For a housing recovery to occur, several conditions must unfold.

“For the best possible outcome, we’d first need to see inventories of homes for sale turn considerably higher,” says Keith Gumbinger, vice president at online mortgage company HSH.com. “This additional inventory, in turn, would ease the upward pressure on home prices, leveling them off or perhaps helping them to settle back somewhat from peak or near-peak levels.”

Of course, mortgage rates would need to cool off, which seems promising given the recent declines. The average 30-year fixed mortgage rate has been below 7% since the first week of June, landing at 6.35% in the week ending Sept. 5.

Meanwhile, experts are hopeful the Federal Reserve will finally cut the federal funds rate in September. Mortgage rates indirectly track this key interest rate banks use as an overnight lending guide. With the federal funds rate at its highest level in over two decades, would-be borrowers have felt the added impact on their ability to afford a home.

However, as mortgage rates continue their descent, Gumbinger says don’t hope they cool too quickly. Rapidly falling rates could create a surge of demand that wipes away any inventory gains, causing home prices to rebound.

He adds that returning mortgage rates to a more “normal” upper 4% to lower 5% range would also help the housing market, but he predicts it could be a while before we return to those rates.

As far as 2025 is concerned, Gumbinger says it’s a little too early to tell whether the housing market will be in better balance considering all the variables, such as whether or not mortgage rates decline and by how much, and how home prices react amid the unleashing of pent-up demand.

“I would think 2025 will be a better year for housing, but not a great year,” Gumbinger says. “[A]ffordability would only be improved somewhat, even with lower mortgage rates in place.”

NAR Practice Changes Are Underway: What Buyers and Sellers Need To Know

Following years of litigation, the National Association of Realtors (NAR) agreed to pay $418 million to settle a series of high-profile antitrust lawsuits filed in 2019 on behalf of home sellers. The settlement also requires new rules to support a more transparent home-buying process.

The real estate industry trade group expects the practice changes to benefit “both consumers and agents by clarifying the financial aspects of real estate transactions.”

Though the final settlement approval hearing is scheduled for November, NAR implemented the new requirements on August 17.

Key Changes That Impact Buyers and Sellers

For decades, it was standard practice for the home seller to cover the buyer’s broker commission and include commission offers on the multiple listing services (MLS)–the private databases where local real estate brokers publish and share information about residential property listings.

However, the plaintiffs argued that this practice was a collusion scheme, contending that NAR and several real estate brokerages required sellers listing homes on the MLS to cover buyer broker commissions.

Consequently, the central settlement rule change prohibits broker compensation offers on the MLS.

Here are other changes buyers can expect:

• Buyers must enter into a written agreement with any agent that uses an MLS that follows NAR’s rules before touring homes.
• Buyers can negotiate how much commission to pay their agent or broker and for what services.
• The buyer/broker written agreement must identify three elements:

1. 1. 1. How much compensation the buyer will pay their professional representative
      2. This compensation specified in a dollar amount or as a percentage
      3. Language confirming that the buyer’s representative cannot receive compensation exceeding the amount in the agreement

Here are other changes sellers can expect:

• Sellers can negotiate with their listing broker how much to pay in commissions and for what services.
• Sellers are free to have their listing broker offer cooperative compensation to buyer brokers off the MLS through other means, such as via social media, fliers, websites, phone calls and emails.
• Sellers are free to offer buyer concessions on the MLS as long as the concessions are unrelated to compensating the buyer’s representative.

Despite the reforms, home shoppers can still attend open houses on their own, contact listing brokers and request information on properties, according to an NAR spokesperson.

How Will the New Rules Impact Affordability?

Now that buyers are more likely to be responsible for paying broker commissions, how concerned should hopeful homeowners be about home affordability in the wake of these changes?

“The greatest impact is going to be buyers that have fewer resources for down payment, closing costs and now the potential of buyer broker compensation,” Matt Side, director of broker development/owner at Realty ONE Group Eclipse in Spokane tells Forbes Advisor.

But the news rules may not only impact a buyer’s budget. Joel Hess, co-owner and managing broker of Realty ONE Group Professionals in Boise, notes that home shoppers, especially first-time buyers, may be shut out from segments of inventory they could have previously afforded.

“[A] buyer may not look at a home that’s otherwise perfect for them if they don’t have the cash available in their budget to pay compensation,” Hess tells Forbes Advisor.

Nonetheless, Side says buyers should know that sellers will continue offering compensation to the buyer representatives to increase accessibility and boost demand for their homes. Side also advises buyers to have upfront conversations with their lender and real estate agent to help them optimize the terms when negotiating a home purchase.

“Understanding what their limitations may be in purchasing will prepare them for a successful real estate transaction,” Side says.

Housing Inventory Forecast: When Will There Be Sufficient Supply To Reduce Prices?

Despite more resale and new homes entering the market, the inventory shortage remains well below the pre-pandemic average, according to a Freddie Mac report. Thanks to multiple headwinds, this severe deficit will likely remain for some time.

For one, many homeowners remain “locked in” at ultra-low mortgage rates, unwilling to exchange for a higher rate in a high-priced housing market. Consequently, demand continues to outpace housing supply—and likely will for the remainder of this year.

“I don’t expect to see a meaningful increase in the supply of existing homes for sale until mortgage rates are back down in the low 5% range, so probably not in 2024,” says Rick Sharga, founder and CEO of CJ Patrick Company, a market intelligence and business advisory firm.

New home construction has provided some relief, with inventory at its highest since early 2008. However, more than this welcome supply is needed to fill the inventory gap.

Still, while inventory is some 33% lower than pre-pandemic averages, there is a bright spot in the data—current inventory levels sit at their smallest deficit since fall 2020, according to Zillow analysis. Moreover, if mortgage rates continue trending downward, this could loosen the lock-in effect and add some much-needed inventory.

Here’s what the latest home values look like around the country.

Home Builder Sentiment Ticks Down Again

Builder sentiment continues to wilt with the summer heat.

Affordability constraints resulting from still-high interest rates continue to dampen the outlook for new construction, with builder confidence dipping from 41 to 39 in July, according to the most recent National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI). This reading marks the fourth consecutive month of downward movement and negative sentiment.

A reading of 50 or above means more builders see good conditions ahead for new construction.

Meanwhile, the construction of new homes, which had been on a tear, helping to fill the hole left by scant resale inventory, continues to sputter.

New single-family home permits fell slightly from June, by 0.1% and remain at their lowest seasonally adjusted annual rate since May 2023 amid ongoing builder blahs, according to the latest data from the U.S. Census Bureau and the U.S. Department of Housing and Urban Development (HUD).

Housing starts for single-family homes were down 14.1%, and completions rose only 0.5% from June. The average permit-to-completion time for a single-family home is slightly more than 10 months, according to NAHB.

Despite affordability headwinds, would-be new home buyers have reason to be optimistic: 33% of builders slashed prices in July to boost sales compared to 31% in June, the highest percentage 2024, according to an NAHB press statement. Moreover, 65% of builders were also open to offering incentives, the most since April 2019.

Residential Real Estate Stats: Existing, New and Pending Home Sales

New and existing-home sales were up in July, but pending sales tell another story. Here’s what the latest home sales data has to say.

Existing-Home Sales

Following a four-month slump, existing-home sales showed some signs of life, rising a modest 1.3% July, according to the latest report from NAR, even as the median home price increased by 4.2% to $422,600 compared to a year ago. Sales fell 2.5% compared to July last year.

A housing recovery—albeit a slow one—seems to be underway, thanks to interest rates starting to cool down.

“Despite the modest gain, home sales are still sluggish,” said Lawrence Yun, chief economist at NAR, in the report. “But consumers are definitely seeing more choices, and affordability is improving due to lower interest rates.”

Also improving in slow fashion is inventory, which has been loosening since December.

The latest NAR data shows inventory ticked up slightly month-over-month by 0.8%, logging 1.33 million unsold homes at the end of July to settle at four months of inventory available at the current monthly sales pace. Most experts consider a balanced market between four and six months.

New Home Sales

Meanwhile, new home sales rebounded compared to the previous month.

Amid rates slipping below 6.8% after cruising past 7% in the spring, July sales of newly constructed single-family houses jumped 10.6% compared to June sales and 5.6% from a year ago, according to the latest U.S. Census Bureau and HUD data.

“Homebuilders have been able to offer concessions, including mortgage rate buydowns, to help home buyers overcome affordability obstacles,” said Sturtevant, in an emailed statement.

However, Sturtevant notes that the new home market is starting to become outshined by the existing-home sector, which, with increasing inventory, provides more opportunities for buyers to negotiate.

Moreover, at $429,800 the median price for a new home is once again more expensive than the median existing-home price.

Pending Home Sales

Despite mortgage rates dipping this summer, early signs suggest that home sales may stall this fall, at least initially.

NAR’s Pending Homes Sales Index fell sharply in July, with contract signings declining in all four U.S. regions. The 5.5% drop produced the lowest index reading on record, even as it comes on the heels of a 4.8% increase in June that many hoped was the start of a favorable trend.