Home Prices Rose 5.5% in 2023. Are We in for a Repeat in 2024?

If you’ve been struggling to buy a home due to elevated property values, you’re not alone. Home price gains were strong in 2023, as evidenced by data from the S&P CoreLogic Case-Shiller Indices.

As of December, home prices were up 5.5% on a year-over-year basis. Not only that, but home prices showed monthly gains in 17 out of 20 major metropolitan areas tracked by the indices.

But are home prices going to keep gaining in 2024? Unfortunately for buyers, they might. Here’s why.

It’s all about interest rates

As a buyer, you may be wondering how homes keep managing to gain value when it’s so expensive to sign a mortgage. You’d think that would lead to a decrease in buyer demand — and a decline in home values, not the opposite.

Here’s the problem, though. In 2020 and 2021, mortgage lenders began offering record-low rates in response to the economic crisis fueled by the pandemic. Many existing homeowners refinanced their mortgages back then to take advantage of those ultra-low rates. And now that mortgage rates are higher, current homeowners don’t want to move. If they do, it could potentially mean signing a new mortgage at a rate that’s more than twice what they’re paying now.

That’s a big reason why home prices managed to climb in 2023, and why they may continue to climb in 2024. Even though higher mortgage rates are pushing some buyers out of the market, there’s still not enough inventory to go around because people don’t want to move.

More: Check out our picks for the best mortgage lenders

The National Association of Realtors reports that as of January 2024, there was only a three-month supply of available homes on the market. But it can easily take up to a six-month supply of homes to meet buyer demand in full.

Inventory is unlikely to increase until mortgage rates decline, though. So buyers may be stuck in a bit of a holding pattern for a while.

Will things get better later in 2024?

The Federal Reserve is expected to start cutting interest rates at some point in 2024. This won’t necessarily cause an immediate drop in mortgage rates. But in time, lenders may start lowering their rates. By the end of the year, we could see lower rates than what we’re seeing today, which could push some existing homeowners to sell.

But for now, buyers may have to accept that they’ll be looking at paying a premium to buy a home. And if you’re hoping to move forward with a home purchase despite it costing more, run the numbers carefully to make sure your total monthly housing costs won’t exceed 30% of your take-home pay. Those costs should include mortgage payments, property taxes, homeowners insurance, and other predictable costs. Going beyond that threshold could make it difficult to keep up with not just your housing expenses, but your bills in general.

Also, although it’s true that mortgages are expensive to sign right now in general, ultimately, each lender sets its own rates. So it’s important to shop around for a home loan rather than settle for the first offer you receive. A little extra research could result in some much-wanted savings.

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