What Will 2024 Bring for the Housing Market?
This year has barely begun, and it already seems destined for the history books. The next months are jam-packed with a combative presidential election, two large wars abroad, a string of high-profile companies announcing layoffs, and fears over whether the U.S. Federal Reserve will be able to guide the U.S. economy to a soft landing.
How each of these concerns plays out this year will ultimately affect the fate of the housing market, which had largely been frozen last year due to high home prices and mortgage rates. Buying or selling a home is one of the largest financial transactions most people will ever make. If they are worried about the future, they might prefer to opt out of the housing market and stay put instead.
“In 2024, the only thing that is certain is uncertainty itself,” says Yelena Maleyev, a senior economist at KPMG. “Uncertainty slows the economy. It can slow or stop investment decisions or hinder consumer spending.”
It isn’t just buyer and seller psychology in play. What happens with the economy will influence which direction mortgage rates move next.
If rates go down, closing on a home might become a whole lot more affordable—if buyers still have jobs to fund these purchases. If rates rise, however, then the market could remain stuck in limbo.
“There are some concerns about what’s ahead,” says Realtor.com® Chief Economist Danielle Hale. “But these things don’t play out quickly.”
The presidential election
One of the most anticipated—or dreaded—events of this year is the U.S. presidential election.
It’s increasingly looking like there will be another showdown between President Joe Biden and former President Donald Trump in November, although the Republican nominee hasn’t been decided just yet. But no matter who becomes the nation’s 47th president, the impact of the election will extend far beyond politics.
The possibility of a new administration with new policies and all of the anxiety that brings can cause some would-be buyers and sellers to hit the pause button, regardless of which party ticket they prefer.
But the election is typically more of a brief blip than something that causes lasting damage.
“Usually, home sales are unchanged compared to a non-election year with the exception being November. In an election year, November is slower than normal,” says Ali Wolf, chief economist of building consultancy Zonda.
By December, the market has usually returned to normal, she says.
As big of a deal as deciding who will lead America will be, a presidential election isn’t always the biggest thing going on in a year.
“Americans, I have no doubt, will pay a lot of attention to the election even if they’d rather watch anything else,” says Hale. “But that doesn’t mean it’s going to be the dominant factor in the economy.”
Take 2008, the year that Barack Obama was elected president. That was the same year that the housing market melted down, foreclosures swept the nation, and scores of builders went out of business.
Then there was 2020, when the COVID-19 pandemic erupted. Initially, the housing market stalled but then picked up quickly as those stuck inside wanted larger homes and yards at the same time that mortgage rates dropped to record lows. Those larger homes were suddenly more affordable thanks to the lower rates.
“There’s a lot going on. A lot of those things could have contradictory impacts on not just the housing market, but the broader economy,” says Jacob Channel, LendingTree’s senior economist. “Where we sit right now, there are encouraging signs. … [But] there are no guarantees.”
Unemployment
Another threat to the housing market is a recession with widespread unemployment. Since March 2022, the Fed raised interest rates 11 times in its fight to bring down inflation. While the Fed plans to begin cutting rates this year as long as inflation continues to come down, economists are divided on whether the Fed will achieve its “soft landing.”
The news has been filled with companies with household names, such Google, Amazon, and UPS, announcing layoffs this year. The number of folks losing their jobs surged 136% from December to January, according to a recent report from Challenger, Gray & Christmas.
However, layoffs were down 20% year over year in January, according to the outplacement firm. And overall unemployment remained low, at 3.7% in January, according to federal unemployment data. (The data generally takes some time to catch up to what’s happening in the labor market.)
“At least right now, the fundamentals of the economy, despite some hiccups, are doing pretty good,” says Channel. “While things are far from perfect, the economy is probably doing better than people want to give it credit for.”
When it comes to buying a home, though, perception might matter more than data. Those who are concerned about the stability of their jobs are a lot less likely to go home shopping.
“Job security is something that impacts consumer confidence,” says Hale. “If they’re not secure in their jobs, it’s hard to see them buying a house, which involves a big chunk of cash upfront and a commitment to pay your mortgage for 15 to 30 years.”
Ironically, there is an upside to rising unemployment. If unemployment ticks up uncomfortably high and the nation slips into a recession, the U.S. Federal Reserve is likely to cut interest rates to stimulate the economy.
Mortgage rates, which are separate but generally follow the same trajectory, would be expected to fall as a result.
Those lower rates would make buying a home more affordable. Buyers with good jobs who had previously been priced out of homeownership could jump back into the housing market, giving it a jolt.
“Anything that inserts an element of uncertainty into financial markets could result in downward pressure on mortgage rates,” says Odeta Kushi, deputy chief economist at First American Financial.
Wars abroad
The deadly wars in Ukraine and the Middle East have the potential to affect the U.S. housing market, resulting in higher mortgage rates.
“If there are any natural resources and trade disruptions, that’s when it could impact the U.S. economy,” says Wolf. “It may cause higher costs.”
If the cost of goods and gasoline rises, then inflation will go back up. And hopes of the Fed cutting rates quickly, and mortgage rates coming down, could be dashed.
“Should conflicts in the Middle East escalate, we could see gas prices increase and inflation could reverse course,” says Channel.
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