2024 Housing Market Outlook

It is one of the most unaffordable housing markets in our lifetimes.

Three key attributes combined for a lethal rise in home prices: rising mortgage rates, low supply for sale, and the largest demographic in history at peak buying age.

Since 2000, rent inflation is up 128% while home prices nearly tripled. For hopeful purchasers, it is now more affordable to rent than buy.

While some may call this a bubble like in the 2000s, the conditions are different. First, mortgage debt is still at about the same level as 15 years ago. Mortgage debt service is at 4% of disposable income compared to 7% at the 2007 peak. The economy and incomes grew since then. In addition, homeowner equity is up to $33 trillion.

Most homeowners who bought in 2021 or earlier locked in mortgage rates below 4%. For them, there is not much incentive to move.

The lack of homes available for sale puts upward pressure on prices. In the latest data, supply increased and is climbing at a greater pace than a year ago. However, it is still below the long-term average.

Historically, home prices appreciate when the current supply of available homes for sale is below 6 months. Supply today is at 3.5 months.

The peak in mortgage rates for this cycle looks like it occurred last year. We could see rates fall further if the spread between mortgage rates and 10-year Treasury yields normalizes. This could contribute to above-average gains in home prices. Household income growth in the 4% range is a positive tailwind.

The top housing analysts and real estate data providers forecast home prices to appreciate 3% to 5% in 2024. This seems right to us. Until the three key factors of mortgage rates, supply, and demographics change, that trend will likely continue.

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