Economists and real estate experts everywhere are asking the same question in the new year: Will there be a housing market crash this year? Indeed, after the housing market dumpster fire that was 2023, economists are split over the real estate’s path in 2024.
So, will there be a housing market crash this year?
Well, probably not. While there are some potential points of concern for housing in 2024, the real estate space is simply too strong to undergo a severe drop in prices that would constitute a “crash.”
Most concerns about a rapid drop in prices stem from the fact that the Federal Reserve plans on cutting interest rates at least three times this year. As the benchmark rate drops, so will Treasury yields and, by effect, mortgage rates.
When mortgage rates fall, two things will happen: Firstly, buyers will enter the market looking to jump on a property under stronger lending conditions. Secondly, sellers will likely take the opportunity to sell their homes and exit their pandemic-era rock-bottom mortgages.
Now, the point of conflict arises when the second effect outweighs the first. Some analysts believe there is a group of pent-up sellers who would like to get out of their current mortgage but are trapped by the current elevated level of interest rates.
Should the sellers substantially outweigh the buyers, prices could fall as a wave of housing supply is unleashed on the market when rates start to drop.
Will There Be a Housing Market Crash in 2024?
Now, to be clear, this outcome isn’t the baseline scenario by any means. When rates fall, home prices tend to go up as more buyers enter the market, as is how supply and demand typically functions.
While there are likely many would-be sellers locked into pandemic-era mortgages, there are also many would-be buyers waiting for conditions to improve before they jump on a property.
In fact, even despite the predicted fall in mortgage rates, reluctant sellers will still largely enjoy rates far lower than anywhere mortgages are expected to go this year.
“Sellers are likely to remain reluctant to give up their low interest rate for a much higher one, so inventory will remain constrained,” says Chen Zao, lead of the Economics Team at Redfin. “As more time passes, more homeowners may be ‘forced’ to sell due to life events, so inventory may rise from the current anemic levels, but it’s unlikely to increase much. That means that prices are unlikely to fall on a year-over-year basis, unless demand falters.”
Historically, as rates fall, the buyers outpace the sellers, leading to higher home prices. While it’s unclear just how much prices will climb this year, at the very least, you can expect a notable jump in home sales.
“Listings will steadily show up, and new home sales will continue to do well. Existing home sales will rise by 13.5% next year,” said Lawrence Yun, National Association of Realtors chief economist, back in November.
On the date of publication, Shrey Dua did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
