Housing Market Forecast 2024: Navigating Challenges and Seizing Opportunities
Heading into 2024, the real estate landscape is bracing for headwinds that pose significant obstacles for those seeking to buy homes. Goldman Sachs has projected a scenario where steep housing prices combined with escalating mortgage rates may dampen the housing market’s appeal for potential buyers. In this article, we’ll unpack the nuances of this projection and consider its broader implications for the real estate market.
Mortgage Rates to Stay Elevated
According to Goldman Sachs, mortgage rates are expected to hold firm at elevated levels, with forecasts pointing to rates just shy of 7% by the end of 2024. This sustained rise in rates is likely to exert considerable pressure on the housing market, with a predicted slump in the sales of existing homes to lows not witnessed since the 1990s. The deterrent effect of high rates appears to be cooling off the enthusiasm of prospective buyers, leading to a sluggish market.
The ‘Lock-In’ Dilemma
Current homeowners are confronting the dilemma of potentially trading their existing, lower mortgages for new ones at around 8%, a situation that has given rise to the ‘lock-in effect.’ Estimates suggest that this scenario affects approximately 60% of all mortgage holders, dissuading them from seeking new properties. With mortgage rates not expected to dip significantly throughout 2024, and a shortage of available properties exacerbating the issue, the pathway to new housing opportunities remains fraught.
Forecast for Housing Starts Points to Decline
Goldman Sachs’ analysis indicates that, traditionally, housing starts have been responsive to mortgage rate shifts. However, when homeowner vacancy rates are low, this correlation diminishes. Despite a surge in mortgage rates, housing starts in September outpaced those in 2019 by 5%. Yet, the prevailing ‘lock-in effect’ is likely to lead to a recalibration downwards, with a forecasted decline in housing starts of 4% for the coming year. The multifamily sector, in particular, may face the sharpest downturn since 2013 due to a backlog in construction and the looming specter of economic recession, which could impact new construction permits.
Home Price Trajectory for 2024
With borrowing costs on the rise, the trajectory of home price appreciation is expected to slow down. Goldman Sachs foresees a modest increase of 1.3% in home prices year-over-year for 2024, marking a deceleration from the 3.4% growth estimated for 2023. While some market observers, like Barbara Corcoran from “Shark Tank,” see current market conditions as ripe for buying, suggesting that a drop in mortgage rates to around 5% could unleash demand and push prices up by 10%-15% due to supply constraints.
Strategic Navigation Ahead
This forecast by Goldman Sachs is a bellwether for the challenges and shifts ahead in the real estate market, particularly affecting the balance of supply and demand. While viewpoints on the market’s direction may differ, these projections are essential for mortgage professionals to plan and strategize for the 2024 housing market’s expected fluctuations.
For industry players, being well-informed and flexible will be key in managing the challenges outlined by Goldman Sachs. Keeping abreast of the latest developments and analyses, such as those offered by MortgageInsights.org, will be imperative for making well-grounded decisions in a dynamic market.
In sum, the real estate market in 2024 is gearing up for significant tests, with market dynamics undergoing realignment under the weight of sustained high mortgage rates. However, for mortgage professionals who are well-prepared and proactive, these challenges present a canvas for innovation and sustained success. It is crucial to stay vigilant and leverage resources like MortgageInsights.org for the latest updates and comprehensive market analyses. With the right approach and insights, professionals in the mortgage sector can turn these challenges into opportunities for growth and advancement in an increasingly complex real estate environment. Heading into 2024, the housing market forecast from Goldman Sachs is not looking promising for potential homebuyers. High home prices and soaring mortgage rates are expected to lead to a significant decline in existing home sales, reaching levels not seen since the early 1990s. This analysis will delve into the various components of this forecast and explore the potential implications for the housing market.
Goldman Sachs projects that mortgage rates will remain high throughout 2024, with a closing rate for the year just below 7%. These persistently high rates are likely to deter potential homebuyers and result in a drop in existing home sales similar to the downturn experienced in the early 1990s.
The high mortgage rates have led to a standstill in the housing market, as current homeowners are reluctant to put their properties on the market. Many homeowners are facing a dilemma, as the prospect of purchasing a new home with rates nearly four percentage points higher than what they are accustomed to is daunting. This “lock-in effect,” where homeowners are hesitant to swap their existing mortgage for a new one with elevated rates, is expected to continue as mortgage rates are not expected to dip below 7% in 2024. The low vacancy rate in the market further complicates the emergence of new housing opportunities.
While housing starts have typically shown sensitivity to mortgage rates, Goldman Sachs’ report highlights a weakened correlation when homeowner vacancy rates are low. Despite a significant increase in mortgage rates compared to previous years, housing starts in September 2023 maintained a 5% lead over 2019 figures. However, due to the lock-in effect, a decline in housing starts is anticipated, with a projected 4% decrease in the year ahead. Multifamily starts are expected to be particularly impacted, with the potential for the most significant downturn since 2013. This is due to a backlog of construction and concerns about recession and subpar absorption rates affecting new permit issuances.
Despite these challenges, the report suggests that robust income growth may temper the demand for multifamily properties, shifting the burden to the higher-income, predominantly owner-occupied segment. Additionally, completion rates are expected to remain strong, which will help alleviate the backlog and slightly increase the rental vacancy rate.
As for home prices, the high borrowing costs are predicted to slow down the rate of appreciation. Goldman Sachs forecasts a modest 1.3% year-over-year increase in home prices for 2024, a significant deceleration from the estimated 3.4% growth in 2023. There is even the potential for a downturn in prices towards the end of the year.
Despite these challenges, some market optimists see an opportunity for home acquisition. Barbara Corcoran, a well-known personality from “Shark Tank,” believes that a reversion to 5% mortgage rates could unleash pent-up demand and drive home prices up by 10%-15% due to constrained supply.
In summary, the housing market forecast for 2024 is not looking favorable for prospective homebuyers. Goldman Sachs predicts that mortgage rates will remain high, reaching close to 7% by the end of the year. This high-rate environment is expected to deter potential homebuyers and lead to a drop in existing home sales comparable to the downturn of the early 1990s.
The lock-in effect, where homeowners are reluctant to swap their existing mortgage for a new one with higher rates, is expected to continue as mortgage rates are not expected to decrease below 7%. The low vacancy rate in the market further complicates the emergence of new housing opportunities.
While housing starts have traditionally shown sensitivity to mortgage rates, Goldman Sachs’ report suggests a weakened correlation when homeowner vacancy rates are low. Despite a significant increase in mortgage rates compared to previous years, housing starts in September 2023 maintained a 5% lead over 2019 figures. However, due to the lock-in effect, a decline in housing starts is anticipated, with a projected 4% decrease in the year ahead. Multifamily starts are expected to be particularly impacted, potentially experiencing the most significant downturn since 2013. This is due to a backlog of construction and concerns about recession and subpar absorption rates affecting new permit issuances.
Despite these challenges, the report indicates that robust income growth may temper the demand for multifamily properties, shifting the burden to the higher-income, predominantly owner-occupied segment. Additionally, completion rates are expected to remain strong, helping to alleviate the backlog and increase the rental vacancy rate slightly.
In terms of home prices, the high borrowing costs are projected to limit home price appreciation. Goldman Sachs predicts a modest 1.3% year-over-year increase in home prices for 2024, a significant deceleration compared to the estimated 3.4% increase in 2023. Towards the end of the year, there is a potential for a downturn in prices.
Despite these challenges, Barbara Corcoran sees an opportunity for home acquisition. She believes that if mortgage rates were to revert to 5%, it could unleash pent-up demand and drive home prices up by 10%-15% due to constrained supply.
In conclusion, the housing market forecast for 2024 presents challenges for prospective homebuyers. High mortgage rates and limited housing opportunities are expected to lead to a drop in existing home sales. The lock-in effect, where homeowners are hesitant to swap their existing mortgage for a new one with higher rates, is anticipated to persist. Housing starts may decline, particularly in the multifamily sector, due to construction backlogs and concerns about recession and absorption rates. Home price appreciation is projected to be modest, with a potential for a downturn towards the end of the year. Despite these challenges, opportunities may arise for home acquisition if mortgage rates were to decrease. Staying informed and adaptable will be crucial for mortgage professionals in navigating the evolving housing market in 2024. For more follow us or sign up for our newsletter.