Home sales will bounce back in 2024, says NAR panel
Economists were optimistic about the year ahead, but noted that inflation and mortgage rates will be key factors.
Key points:
- The association held its annual Real Estate Forecast Summit on Dec. 12, featuring a panel of housing market economists.
- The expectation is for mortgage rates to fall in 2024, spurring demand from buyers.
- Inflation is “a tricky beast to tame,” however, and could keep rates elevated.
After two down years, things could soon be looking up. That's the outlook from NAR Chief Economist Lawrence Yun, who is expecting a big bounce back in home sales in 2024.
During the National Association of Realtors' annual Real Estate Forecast Summit on Dec. 12, Yun reiterated the predictions he presented at NAR NXT in November, saying he believes existing home sales will increase by at least 13% next year, reaching 4.71 million, while new home sales will see a 19% jump. Those increases will effectively rebalance the market after home sales declined 18% in 2022 and are expected to decline another 18% by the end of 2023.
But there's an important wild card, Yun noted: mortgage interest rates. Yun expects rates to settle around 6.3% in 2024, which he said is low enough to unleash some pent-up demand.
Inflation could be a spoiler
Mortgage rates don't exist in a vacuum, and economic factors — particularly inflation — could prevent rates from falling as expected. Many of last year's real estate forecasts predicted a significant drop in mortgage rates, but that didn't happen, as persistent inflation led to four rate hikes in 2023. Elevated mortgage rates effectively froze the market, and that could continue to be an issue in 2024 if inflation remains above 2%.
Calling inflation "a tricky beast to tame," Realtor.com Chief Economist Danielle Hale said during the panel discussion that there's still the potential for rates to go higher if inflation rises.
But, she noted, rent prices are a big driver of current inflation levels, and there's evidence that they are coming down faster than the lagging government data suggests.
"So I think there are reasons to be optimistic, but if there's a concern, [mortgage rates] is where it would be," Hale said.
Following the release of the November Consumer Price Index today, Yun said in a blog post that rents rose an "incomprehensible" 7%, but he expects that percentage to drop to "a more realistic 2% to 4% rise in upcoming months." If that happens, inflation will fall below 2% — the Fed's target rate — and "at that point, there is no excuse not to cut interest rates," he said.
New construction to play a key role in the 2024 housing market
The economists at the summit also seemed optimistic about a rebound in new construction. Single-family construction could get a boost, and homeowners with locked-in low rates are likely to drive an increase in remodels as they remain in place instead of selling, said Danushka Nanayakkara-Skillington, an economist with the National Association of Home Builders.
One thing that could stymie an increase in new construction, however, is a shortage of labor. The overall labor market appears to be slowing, but builders are eager to find workers. Nanayakkara-Skillington estimates around 700,000 new workers are needed in the construction industry just to keep up with the number who are leaving, mostly due to retirement.