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Thinking about buying a home this spring? You'll want to check out the latest update to the income needed to buy a median-priced home in the top 50 metro areas.

Thinking about buying a home this spring? You'll want to check out the latest update to the income needed to buy a median-priced home in the top 50 metro areas.

HSH.com 2024 Outlook Road Ahead

Forecast ItemHSH.com expectationDiscussion
Mortgage rates Perhaps as low as 6.3%Mortgage rate outlook
Federal funds Cuts in latter half?The Fed/Monetary Policy
Fannie/Freddie/FHA Keeping on, but maybe MIP reliefFannie/Freddie/FHA
Mortgage regulations Just a little to expectMortgage Regulations
Underwater mortgages A mixed bag, perhaps steadyUnderwater homeowners
Cash-out refi / Home equity Likely marginally higherRefinancing & home equity
HECM / Reverse Mortgages Picking up a littleHECM/Reverse Mortgages
Home Prices Well supported for the most partHome price forecast
Existing Home Sales Improving on a slow paceExisting home sales
New Home Sales A bit of a brighter outlookNew home sales
Additional thoughts Three more things on our mindA few odds and ends to consider

Mortgage rate outlook

Statement on last year's Outlook: Not great. We expected a range of 5.875% to 6.875; markets provided 6.09% - 7.79%, with the summer-into-fall bond market selloff blowing up our forecast.

The prospect for lower mortgage rates in 2024 is certainly better than were those for 2023. This news should be at least modestly encouraging to anyone looking to purchase a home or refinance, but as with many things, there are limits. To be fair, it would be hard for mortgage rates to not be improved compared to this year, when 30-year fixed-rate mortgages rose to about 22-year highs.

There are some factors which should help promote somewhat lower mortgage rates in 2024. To start, it is likely that the cycle of hikes in short-term interest rates by the Fed has come to a conclusion. Even should they find some reason to lift rates again, another quarter-point rise would mean little, given the 525 basis point of lift seen in recent years. Such a move would only come if inflation fails to continue to decline or is there is some meaningful (and sustained) reversal of the present trend for prices.

More likely is the reverse, and that the Fed finds reasons to start to begin to loosen policy, if only to avoid having policy inadvertently become tighter as inflation retreats. For a time, nominal interest rates were lower than was inflation, a happenstance considered to be an "accommodative" policy stance. Presently, with short-term rates at 5.25% - 5.5% and core PCE inflation at 3.2%, so-called "real" interest rates are fairly restrictive at about a 2% "real" rate. Should inflation trend down toward 3% while policy remained unchanged, this would add the equivalent of another quarter to half-point of monetary tightening, something the economy likely doesn't need at this stage.

That said, just as a quarter-point increase wouldn't mean much if it came, it's important to remember even should the Fed cut rates that a quarter-point cut (or even a couple of them) will still leave short-term interest rates at elevated levels next year.

Economic growth, too, seems as though it's likely to settle back toward the trend that was in place during the record-long economic expansion, one only ended by the pandemic. Since then, there have been fairly pronounced swings in activity, with GDP running as hot as nearly 7% and as cool as a decline of nearly 2% (in consecutive quarters, even). Of late, the third quarter of 2023 ran as strong as 4.9%, but that was preceded by a string of quarters in the low-to-mid 2% range, a very familiar level before the pandemic and subsequent fiscal and monetary responses to it distorted things. The latest estimate for the fourth quarter pegs growth so far at a solid 2.7% pace for the period, but growth may decelerate somewhat more yet when all is said and done.

During the record-long expansion, routinely modest growth failed to create much by way of price pressures, and probably won't do so now. That's not to say the economic and political climates now are the same as then; they aren't. The global economy may not perform in the saw way that helped promote softer growth or push interest rates lower, what with the wash of government debt still flooding the markets here (and elsewhere).

For folks wishing for rapid declines in mortgage rates: The lowest interest rates usually come in the worst economic climates, and no one should openly wish for those. It's also worth considering, given the still-significant supply issue plaguing the housing market, that a considerable drop in rates would likely re-ignite demand -- and more demand with no commensurate increase in supply would mean higher home prices... eroding the value of lower rates.

As we write this outlook, the average offered rate for a conforming 30-year FRM (per Freddie Mac) is just a bit below the 7% mark, its lowest level in more than four months. Having retraced a fair bit of the summer-fall run-up in mortgage rates already, it would not be unheard of to see some of this decline relinquished, so it's not likely to be a straight line down for rates from here.

Looking out over 2024, we think the average offered rate for a conforming 30-year FRM should probably be able to run in a range of 6.3% to 7.3%, with the lower end more likely to be seen after the Fed first cuts rates and signals that more may come.

The Fed / Monetary Policy

Statement on last year's outlook: Pretty close. Last December, we thought there would be perhaps 75 basis points of hikes coming in 2023. There were actually four quarter-point hikes -- 100 basis points -- and the Fed has held fast since then.

For much of the last half of 2023, it's been our opinion that what the Fed has to say -- it's intentions for monetary policy -- have been more important to the market than what it may actually do. And, to be fair, they have done exactly nothing since the last hike in the federal funds rate back on July 26. Since then, it's all been about the rhetoric and the outlook for the future.

As 2024 begins, there has been no official change to any monetary policy rates, so the greater importance of the Fed's words remains in place. To that end, a change in Fed members outlooks has seemingly set the stage for lower policy rates in 2024, and perhaps up to three quarter-point cuts in rates is the current unofficial outlook from policymakers. This surmises that everything works out as these Fed officials expect it to; that is by no means a sure thing. By way of example, just three months ago, the median expectation was that the December meeting was be likely to feature a quarter-point increase in policy rates.

As well, consider that as recently as June 2023, these same folks were forecasting that a full-point cut in rates by the end of 2024 was expected; then with a "higher rates for longer" stance forming through September, this rate-cut outlook suggested only a half-point drop for 2024. Now, this has moved up to perhaps a 0.75% trim over that same time horizon.

All this is to highlight that a forecast of expected outcomes isn't an actual path for Fed policy, which adapts over time as incoming data change the picture. The most recent (December) update of the Summary of Economic Projections (SEP) reveals this, as there has now been a discernable shift from "higher for longer" for policy rates to one of "higher a while, and lower soon thereafter".

Fed members now expect perhaps three quarter-point decreases in the federal funds rate by the end of 2024, and the median expectation for the level of the federal funds at the end of 2024 is now 4.6%, down from 5.1% back in September.

While it's both hopeful and encouraging for potential borrowers that rates will likely be lower next year, it's also important to temper that enthusiasm. The reality is that a 4.6% median federal funds rate would return it only to about where it ended 2022 and began 2023. This would still be as high as this rate was back in 2007, so the rate would be moving only from about 22-year highs this year back down to 16 year highs. As such, the cost of money will be cheaper, but still by no means cheap.

Aside from adjusting interest rate policy, the Fed continues to also still reduce the size of its balance sheet. Reducing mortgage holdings relies on two things -- mortgage balances being paid down by homeowners, or homeowners refinancing and taking a loan off the Fed's books. With mortgage rates high, refinancing activity has been nearly non-existent for much of 2023, leaving mostly amortization of loans to trim the portfolio. The Fed has a goal to reduce holdings by $35 billion by "runoff" each month; however, since the program's inception, redemptions have averaged only about $14 billion per month (the best month saw a $20.41 billion reduction).

Back when the program started, the Fed held $2.740 trillion in MBS; as of December 6, 2023, this has been pared down to $2.447 trillion. By now, if redemptions and refinances had gone according to expectations, the Fed should be holding about $2.150 trillion, so only about half the expected amount has been retired from the Fed's portfolio.

The Fed also has a stated goal of (eventually) only holding Treasury bonds, but the pace of MBS runoff has been very slow. If runoff was to actually run at a $35B/month rate, it would take about 70 months to erase MBS holdings. At the present pace, it will be 125 months -- more than 10 more years -- to get the Fed to zero MBS holdings. Even to just return MBS stockpiles to where there were before the pandemic QE kicked in (about $1.3T) it will take another 55 months at the current rate of retirement. Any of these paces is likely too slow for the Fed, and is also the reason why they have noted that portfolio runoff will likely continue even when policy rates continue to be lowered.

Given the low level of new MBS issuance (due to the rate climate this year), it's certainly possible the Fed would entertain actually selling off some of its holdings to reach its "no MBS" goal in a more timely manner. Since loans the Fed holds have below-current-market interest rates, this would require realizing losses on sales, which isn't an especially good look, and so probably won't be considered very soon. At the same time, investor appetites for MBS hasn't been all that stellar this year, with banks and others selling their holdings at times, pressuring market mortgage rates higher. Still, and once the path for interest rates becomes more certain, there's a chance that discussions of MBS sales could surface.

As far as short-term interest rates go, we think that the Fed will hold off cutting interest rates for a while into 2024. The first inkling that cuts are coming will probably show in the March Summary of Economic Projections, when the Fed's stated "bias" will likely shift from a neutral stance to one leaning toward near-term reductions in rates. By then, core PCE inflation should have settled to around or perhaps a little below the 3% mark, opening up a little room for the Fed to adjust policy. As noted in the mortgage rates section above, the Fed will need to adjust their policy stance to follow along with declining inflation, if for nothing else than just to keep a constant level of policy restriction in place.

The June SEP will likely point to another one or two cuts to rates before the end of 2024. We'd reckon that would mean September and then again in December, with continued progress on inflation the determining factor for the late-year move.

For more about the Fed's actions, see our regular updates on Fed policy changes, updated after each Fed meeting.

Fannie/Freddie/FHFA/FHA

In Washington, it's hard enough to try to get things fixed that are broken, let alone try to address things that work but might be improved. As we close out 2023, it's now been 15 full years that Fannie Mae and Freddie Mac have been wards of the government, and they function well enough that few elected officials are interested in addressing the reformation of the GSEs. All of the remake/reform/release ideas and efforts of the years between the housing collapse and now seem to have gone by the wayside, and many of the champions of those ideas are no longer even in Congress.

Also, as noted below in the regulations section, it's an election year. It's not clear if housing policy is on the minds of any candidate, excepting perhaps the vague goal of "affordable housing".Over the last few years, pressure has been increased for the GSEs to do more for low and moderate-income homebuyers and others, and this is where the focus is likely to remain for 2024, even after there were some controversial changes to loan-level pricing adjustments and mortgage costs for second homes in 2023. The 2023 mission outlook was to "Promote equitable access to affordable and sustainable housing" and to "Conduct business and undertake initiatives that support affordable, sustainable, and equitable access to homeownership and rental housing, and fulfill all statutory mandates" and it's hard to see much effort expended outside of these areas at present.

If you have an interest, how well the GSE are achieving their statutory goals and more can be seen in the FHFA's annual report.

For borrowers more in the mainstream, about the only likely change for 2024 was another increase in the conforming loan limits for 1-4 family homes. The maximum loan amount that applies across all markets is now $766,550, but can be as high as $1,149,825 in certain high-cost housing markets. If reform to the enterprises should ever come, on consideration might be to start reducing the conforming loan limits. Even with record-high existing home prices, the current limit is more than 75% above those levels, leaving very few customers for the truly private mortgage market to profitably serve.

Outside of a continued focus on "mission" loans and "affordability" efforts, it seems likely that there will be little change to consider at the GSEs in 2024.

The FHA, though, could see a change, though, at least in terms of the insurance premiums for FHA-backed loans. In 2023, the FHA's Mutual Mortgage Insurance FUND (MMIF) was capitalized at a level well above the statutory requirement, and a surprise cut to annual MIP premiums for forward FHA mortgages and for reverse mortgages was implemented. For 2024, the capital ratio isn't quite as gaudy, although the 10.51% rate current in place far exceeds the 2% mandatory minimum.

Could another cut in MIP premiums come in 2024? It's not impossible, but is unlikely, since the last cut in premiums happened less than a year ago. Since both the upfront and annual MIP are percentage-based fees, fast-rising home values have helped money flow into the fund, while a fairly solid economy has helped losses due to default remain low. Those same rising home values reduce the potential for loss on the FHA's HECM portfolio, a segment that was a trouble spot up until 2020, when leaping home values turned this segment from a negative to a positive. However, it's not likely that home values will increase as markedly in the coming year as they did over the last few.

While there will always be calls to reduce MIP premiums to help lower entry or recurring costs for homeowners, it's worth considering if the next change might be to allow for MI premiums to be canceled when the loan's LTV ratio falls below 80%, as is the case in the conventional market. Presently, borrowers who make less than a 10% down payment on a 30-year FHA loan cannot cancel their MI, regardless of LTV (with 10% down or more, MI can be canceled after 11 years).

Even assuming zero home price appreciation, an FHA borrower starting with a 3% down payment should be at an 80% LTV level at approximately payment 127, or about 11 years after the loan is originated. By this point in the loan (and assuming payments have been made on time) there's likely to be little risk to the MMIF, and it's certainly possible that many FHA loans will have been refinanced into conventional loans to eliminate PMI before reaching the 11 year mark. Any automatic cancellation could even be based purely on payments, not home value appreciation, and so would likely only happen for the relatively few borrowers who have remained in their loans for an extended period of time.

At a time when many folks in office could use bit of a positive press, this might be an easy way to garner some at virtually zero cost today, and probably very little cost (if any) in the future, either. We think it's a possibility for 2024.

Mortgage Regulations

There's probably not much to be expected on the mortgage regulatory front for 2024. The market's primary regulator -- the Consumer Financial Protection Bureau -- is still embroiled in a case before the Supreme Court that may dictate whether or not it has had the legal standing to regulate the mortgage industry, or whether its construct is unconstitutional.

Potential outcomes range from finding that its funding structure violates the Constitution but that its rules are valid and enforceable to a finding that negates everything that has been put in place since its inception back in 2011. With this hanging over both the regulatory authority and the consumer markets in general, it's unlikely that we'll see much by way of new regs being put forth in 2024.

Perhaps the only significant regulatory push of late is pressure on lenders and others to eliminate so-called "junk fees", or add-on costs passed along to consumers as account or loan fees.

Our expectation for a fairly quiet rulemaking year for 2024 is reinforced by the simple fact that it is an election year. An already-fractious Congress distracted by the noise of the election cycle is less likely to want to tackle significant legislative items, let alone muck around in consumer financial and mortgage markets or press regulators to do so.

We track important changes to regulations, regulators and the GSEs in our weekly MarketTrends newsletter.

Underwater mortgages... still

The last couple of years have featured extraordinary increases in home values. Even with many areas still seeing gains, things turned more mixed in 2023. Certainly, potential homebuyers would love to see home prices easing, at least a little, while homeowners -- particularly those who bought homes at or near peak prices -- are hoping for exactly the opposite. If home prices should begin to retreat, the number of folks who owe more on their mortgages than their homes are worth would increase. Even if not underwater, a loss of equity due to softer home values could make it hard for wanna-be sellers to exit properties without losing money.

Even with tremendous gains in home values in the last couple of years, the issue of at least some borrowers in some places holding loans in excess of the value of their home persists. CoreLogic reported that in the second quarter of 2023, the total number of residential properties with negative equity was still 1.1 million homes, or 2% of all mortgaged properties.

Property prices are still well supported, but that's not to say they are rising everywhere. Depending on your preferred gauge, you'll likely find at least some markets with lower values now than was seen last year, especially once you look beyond the top 20 metro areas. For example, the data we use to power our Home Value Tracker shows that 40 of 405 housing markets (~10%) had lower values in the third quarter of this year when compared against a year ago. As well, a seasonally-adjusted HPI data set from the Federal Housing Finance Agency showed 7 of the top 100 metros (7%) with value reductions using the same 3Q22 to 3Q23 comparison. Even a comparison that uses existing home prices in the top 50 metro areas from data provided by the National Association of Realtors revealed 11 of those markets with lower values in the third quarter of this year than last (and a total of about 18% of the 221 metros they track, too).

In most cases, declines were seen in formerly high-flying metros, such as Austin TX or Boise ID, markets which may have become a little overvalued. It is markets such as these that will likely contribute to more homeowners being underwater; however, this unfortunate happenstance is only likely to affect homeowners who bought at or near peak for prices, and even then, there's no value to actually lose unless the home must be sold. Given that these would be pretty recent home purchases, these are homeowners who are probably least likely to sell so soon after buying, especially in light of the highly competitive market they likely fought through to get the home in the first place. Even should it occur any temporary value loss should be erased over time, but until then, some of these folks will probably be counted among those homeowners considered to be "underwater".

On balance, odds favor that the pretty flat trend for underwater mortgages will continue in 2024, likely averaging around 1 million to 1.3 million properties.

Interested in what's happening with home values?HSH's new Home Value Tracker covers home price changes in more than 400 metro areas over five different time periods. As well, you can see what's happened to home prices in your metro area over any time period you like using our Home Value Tracking Tool - MyHVT.

Home Equity / Cash-out refinancing

Even with some markets showing softer home values compared to a year ago, the vast, vast majority of homeowners have deep or very deep equity stakes. That's true even a place like the Austin-Round Rock-Georgetown TX metro area, where values were 7.7% lower in the third quarter of 2023 compared to the same period last year. Even factoring for the near-term dip, home values in this market are still about 44% higher than they were three years ago and still more than 8% higher than just two years ago. Many smaller and mid-size metro areas are still seeing very strong price gains, too, with high-single-digit annual increases seen in places like Hartford CT, Milwaukee WI, and Cincinnati OH.

While typical homeowners may have a deep equity stake, borrowing that equity isn't all that attractive, largely due to high interest rates. Home equity lines of credit are typically priced at about two percentage points above the prime rate, putting HELOC pricing for typical borrowers at about 10.5%, more than a 20-year high. Still, Federal Reserve data shows that through the third quarter of 2023, growth in home equity lines of credit managed to increase 2.8%, about $9.568 billion in new borrowing. Since interest rates were on the rise throughout that period, borrowing on fixed-rate home equity loans was somewhat more appealing, and these installment-type second mortgages managed a 5.4% rise in activity, with $25.131 billion in new originations by homeowners.

With first mortgage rates likely to ease somewhat, it's certainly possible that some potential equity borrowers will turn to a cash-put refinance to access their equity stake, but for homeowners with existing mortgage rates in the threes and fours this won't be an especially attractive or viable angle. With market-based interest rates and the Fed-following prime rate likely to be a bit lower next year, there's a good chance that more homeowners will instead turn to home equity lines and loans to tap equity.

Since we're reckoning for 2024, we think we'll see a 4% increase in originations of home equity lines of credit and perhaps a 7% increase in those of home equity loans. Rates still won't be all that attractive, but for most homeowners it will be more favorable to expose a relatively small dollar amount to them in a draw of home equity via a loan or line than it will be to take a new mortgage with both a higher loan balance and a higher interest rate.

At the same time, cash-out refinancing should see a little boost as mortgage rates improve, but even in an improved interest rate climate, they won't be low enough for most homeowners to want to replace what is likely an existing lower-rate loan with a new one at a higher rate.

Certainly, there can be situations where such an exchange will work. Borrowers with old loans that have very small existing balances could be one audience, but there likely aren't many homeowners that will fit this category. Perhaps the primary audience will be borrowers looking to tap equity to spruce up their homes in preparation for a sale in the next year or two. Yes, the new loan's interest rate will likely be higher than their existing loan, and yes, the loan balance will be higher, but restarting the amortization clock all over again does help ameliorate the impact of these to a degree... and, y comparison, taking out a home equity loan or line of credit instead still brings the potential for a higher monthly payment for the two mortgages combined.

In a short time-frame situation, the long-term effects of higher interest cost don't really come into consideration, as it's more about current cash flow as opposed to long-term costs. As an example...

A homeowner who took a 5.25% 30-year loan back in May 2022 for $300,000 would have a principal and interest payment of $1657, and by May 2024, will have a remaining loan balance of about $291,000.

A cash-out refinance with a $24,000 equity draw (loan balance $315,000) at 6.25% produces a monthly P&I payment of $1940, so this would be a $283/month increase.

Taking a home equity loan of $24,000 for 10 years at a rate of 9% brings a monthly payment of $304, so the cash-out refi would cost about $21 per month less than the equity loan (to make the payments roughly equivalent requires a home equity loan rate of about 7.375%).

This is only an example to show what's possible, of course, but it does at least suggest that some homeowners will look to do cash-out refinances this year. All that said, refinancing activity overall will remain quite muted -- rate and term refinances will likely be attractive only for recent (e.g. 2024 vintage) homebuyers, while cash-out refinances should pick up just a little for existing homeowners who don't have long-term plans to stay in their current home.

Freddie Mac noted back in August that in the first half of 2023, nearly nine out of ten conventional refinance originations were cash-out refinances. While this may sound like the old "house as an ATM" days, the reality is that it simply shows how few traditional rate-and-term refinances were taking place as rates continued their rise in 2023. That rise in rates apparently peaked in late October; even with considering their recent retreat, mortgage rates still remain well above even early 2023 levels (let alone the far lower rates of recent years), so there's little reason to expect a surge in cash-out refinancing. That said, if rates should decline further from present levels in 2024 as expected, activity for both traditional and cash-out refinances should improve, at least somewhat.

How much equity might you have in your home today... or in the future? Try our Home Equity Calculator and Projector. You can also learn all about home equity loans and linesin our comprehensive guide.

Reverse Mortgages

High interest rates didn't only crush activity in forward mortgage markets, they also significantly curtailed action in reverse mortgage markets, too. When reverse mortgage rates were low in 2021 and 2022, many homeowners with existing HECMs took the opportunity to refinance, taking advantage of both higher property values (expanding the amount of equity they could access) and increased homeowner ages (same) all with the chance to meaningfully lower the amount of accrued interest these loans would accumulate, leaving more equity available in the future.

For fiscal year 2023 (ending September 2023), HUD backed just 32,963 HECMs, a decline of 48.9% compared to FY2022. The annual report to Congress regarding the state of the FHA's Mutual Mortgage Insurance Fund (MMIF) noted that HECM-to-HECM refinance endorsements have declined from over 50 percent of all HECM originations in 1Q22 to just 10 percent of volume during the third quarter of FY 2023. For all of FY23, we reckon that HECM refinances dropped from 50% of all HECM activity to perhaps 14% for all of 2023... and as noted, that activity was dwindling further as interest rates moved higher in fall of 2023.

Higher rates simply left no reason for most homeowners to bother to refinance their HECMs, but they also seemed to even damp originations for "traditional" uses, too. Endorsements for traditional HECMs fell from 33,236 in FY2022 to 26,917 in FY23, a 19% decline. As will, since these rates were both less favorable -- and homebuying conditions still very challenging -- even the use of an HECM to purchase a next home was impacted, with the use of a HECM for this purpose declining by about 9% in FHA's last fiscal year.

Although interest rates for HECMs will eventually decline along with other market-based interest rates, they haven't yet. Even when they do, even as much as a full-point decline won't leave them much better than where they started 2023, so there's little reason to expect a significant increase in HECM activity in 2024. At best, we might see a 5% or so increase in HECM endorsements in 2024, with all of the growth likely coming from the "traditional" sector -- but perhaps a little "HECM for purchase" pickup, too.

Home prices

Statement on last year's Outlook: Pretty good. Last December, we expected an "overall slight decline (or flat, at best)" for existing home prices. The average monthly median price for 2022 was $383,875; for 2023 (though November) $388,572 -- just a 1.2% increase, and if December's median price follows last year's 2.6% December decline, flat it will be at $388,651 for the year.

Last year at this time, we were among the few who believed that existing home prices would be well supported in 2023, and they came off their seasonal lows to reach their second highest median level ever in June 2023 (June 2022 is still #1).

As we write this, there has been fewer seasonal decline in home prices than normal -- just 19 of the top 50 metro saw median home prices decline (compared to the second quarter). A year ago, this was 41 of 50 markets, and outside of two very distorted pandemic years (2020, 2021), price declines in 26 markets (50+%) is more typical in each year's third quarter, with the fourth quarter of each year usually the cyclical valley for home prices. With the downtrend for mortgage rates and fewer softer markets coming into the period, it seems likely that the seasonal dip may be shallower and less broad than usual to close 2023.

As far as seasonality goes, from 2022's June peak of $413,800, median existing home prices declined to $361,2000 by January of 2023, a 12.7% decline. This year, the peak for home values was $410,000 in June, and if the same decline should occur, the bottom for median home sale prices would occur in January at $357,930 -- but late 2023, declines in mortgage rates may firm up demand for homes through the holidays, tempering the seasonal price decline somewhat, allowing 2024 prices to start the year from a higher seasonal bottom.

With mortgage rates down from peak levels, at least some additional demand will likely spill into the housing market early in the year, and probably before the "spring homebuying season" gets underway. This will be the re-engagement of potential homebuyers who moved to the sidelines during the summer-fall spike in mortgage rates being added to those folks who have remained in the market despite summer and fall 2023's challenging conditions. Not that home prices are likely to seasonally sag all that far this year, but any fresh demand for homes will likely firm them up again, as there will still be too few homes available to meet demand.

The lack of homes available to buy -- caused by a combination of factors, and not just the so-called "lock-in effect" of homeowners reluctant to give up mortgages with rock-bottom rates -- isn't likely to change dramatically, but it may start to improve a little. A least some homeowners with a deep equity stake may be able to make a move with less effect on their monthly payment, and folks who have needed more or different space maybe more motivated this year after struggling through 2023.

We think existing home prices will be very well supported again in 2024, as the housing market only takes small steps toward normalizing. It would not surprise us at all to see a new record high home price at the typical seasonal peak in June, but overall for the year, existing home price increases probably run in the 2.5% - 3% range on average across markets.

Prices for new homes have been telling a rather different tale. Improved supply chains, lower lumber prices and worker shortages that have begun to ease have helped prices to settle, and builders have been using price cuts and financing incentives to help keep homes selling. The median price of a new home sold has become more competitive with median existing home prices, and in November 2023, the median price of a new home sold was $434,700 versus $387,600 for an existing home. Where prices of existing homes have been sticky and stubbornly high, those for new homes have fallen considerably, and the price of a new home sold in November 2023 was actually 6% below the same month in 2022.

The new construction market doesn't suffer from the same kind of supply issues as does the existing home market. In fact, the supply of new homes available to buy is very good at the moment, with about 9.2 months of supply at the current rate of sale through November 2023. The actual number of new homes available to buy is only a bit thinner this year than last, with 451,000 (annualized) units available for sale, down from November 2022's 455,000 units. Like the existing housing market, the improvement in the inventory-to-sales ratio has largely come from flagging buyer demand amid the current high-rate climate. Regardless, there are still more than enough new homes available to satisfy demand, even if it strengthens.

While that's good news for potential homebuyers, it doesn't mean that new homes are a substitute for a better-balanced existing home market. It also seems likely that prices for new homes can't really decline much more from present levels, either. Prior to the pandemic, median new home prices routinely ran in the $320,000 - $340,000 range; the last time we saw this moderate price level was more than three years ago in August 2020, but due to pandemic disruptions and distortions, prices of new homes rose 52.7% to their all-time peak before in September 2022 before beginning their recent retreat.

While there will be typical fluctuations in seasonal demand that influence new home prices, we think that the overall trend for them for 2024 will be essentially flat compared to where we are at the moment, but when comparing the average for all of 2024 against all of 2023, we may end up seeing a slight decline of perhaps 2% - 4% for the year.

You can reckon what's happened to the value of your home since you've owned it using our MyHPI tool.

Existing home sales

Statement on last year's Outlook: Not great. We expected as much as an 8% decline in sales of existing homes, but mortgage rates didn't act as expected, running up to 22-year highs. This produced a decline closer to 18%, pending December's figure.

Plenty of demand, lack of supply, adverse financing conditions. This has been the state of the existing housing market for the last couple of years now, and there are few signs that things are likely to change appreciably in 2024.

That's not to say that conditions won't be changing; they will. Mortgage rates have backed down from 22-year highs, which helps a few more borrowers to better participate in the market. However, demand hasn't been the problem, and more demand isn't all that helpful, as the number of homes for sale remains very thin. In fact, any fresh demand may simply serve to deplete already-limited inventory and again press home prices higher, or at least keep them from retreating. Of course, even with recent declines and those we expect to see, mortgage rates aren't likely to challenge even the (still-high) "lowest" levels seen in 2023 during 2024, let alone fall below them. As such, additional demand for homes may only be strengthened at the margins by lower financing costs.

But will supply levels of homes available to buy improve? Home sellers have been reluctant to put their homes on the market for a number of reasons, but improving interest rates may help this situation a bit, too. A smaller gap between their existing loan's interest rate and a new one will be less daunting, and having a large equity stake to swing into a new property could mean a smaller loan amount that is exposed to it as well.

At the same time, there are always some sellers who are motivated to move -- folks relocating for work reasons, moving for family reasons, retiring from high-cost markets to lower cost ones, etc.. Arguably, with markets in turmoil last year, there were somewhat fewer of these folks than might be typical, and improved opportunities this year -- or simply the passage of time -- may see somewhat more of them put homes into the market this coming year. This may be enough to help stabilize or actually lift the actual number of homes for sale a little.

Somewhat improved demand and somewhat improved supply amid somewhat improved financing conditions seems likely to produce somewhat improved existing home sales for 2024. In 2023, the peak annualized sales rate per the National Association of Realtors was 4.55 million; the nadir (through November) 3.79 million, and the average for the year is a 4.13 million annualized monthly sales pace. With some improvement around the margins, we think existing home sales can improved on that average by about 5% or so, and existing homes will probably manage a 4.35 million rate of sales when all of 2024 is tallied.

Wondering how much home your income and debts will allow you to buy? HSH's Home Affordability Calculator can help you get a handle on your home purchasing power.

New home sales

Statement on last year's Outlook: Undershot the mark a bit. We expected to see a fair year for sales of new homes, with perhaps a 2% increase for the year. Nothing available to buy in the existing home market led to about a 4.5% increase for the year (December data yet due.)

With recent housing conditions challenging, it's probably easy to overlook that sales of new homes have actually been in a long recovery. Way back in February 2011, in the midst of the housing collapse and Great Recession, new home sales bottomed at just 270,000 annualized units sold, and sales generally trended upward until June 2019 (763K). After that 8+ year run, sales of new homes had generally flattened out, but before long, the pandemic distorted everything, and sales fell to 579K by April 2020. Since then, it's been more of a mixed bag, as low mortgage rates sparked a boom, kicking sales to a 1,029 million rate by August 2020. This flare was strong enough to have apparently "borrowed" some then-future demand from 2021, as even with low mortgage rates still in place, new home sales were settling back toward longer-run trend. As mortgage rates began to stride higher in 2022, sales activity was curtailed. At present, the latest look at new home sales for all of 2023 (through October) pegs the current run rate at 677,000, still a pretty fair level given that October featured the highest financing rates in about 22 years.

An offset to higher costs has come from builders themselves. Financing incentives (subsidizing interest rates either temporarily or even permanently) and/or combined with lower new home prices has helped keep sales rumbling along, and the prospects for a pickup in sales next year seems likely. The lack of inventory in the existing home market has somewhat more borrowers considering new construction as an alternative to meet their housing needs, even if it may not be a perfect fit in all areas.

But there are limits here, too. Much new development takes place outside or on the fringes of major metropolitan areas; admittedly, that's less of a concern when someone can work remotely. But with companies at least trying to sunset work-from-home arrangements, the prospect of longer commutes to and from a new home does again become a consideration. Still, the chance to actually buy a home even with drawbacks may be compelling for buyers who have been shut out of the existing home market for as long as a few years now.

With mortgage rates still far from cheap, builders will likely still need to offer a range of incentives to keep sales perking along. However, they probably won't have to work as hard to get potential buyers interested, and sales of new homes should improve in 2024. With mortgage rates lower, and seasonal and monthly swings notwithstanding, buyer demand should pick up from present annualized levels. With this as a backdrop, sales of new homes will probably post gain of 8% to perhaps 10%, putting them at a 731,000 to 744,000 total for the year.

Additional thoughts

Every year has some overarching things -- "known unknowns" as it were -- that can change a lot of things in positive or negative ways. There's just no way to know which way they might break.

We are entering 2024 with wars running in the middle ease and Ukraine, and the influences from and outcomes of war are of course uncertain. There's no way to know if there will be any resolution to either conflict in the coming year, and even if there is, what the aftermath would present politically or economically. Given the divisiveness among factions and countries today, there's no telling if these conflicts will remain contained where they are or spread to new locations, or if wholly new situations may emerge.

As well, it's also an election year here in the U.S. "Elections have consequences," as the phrase goes, but at the moment, all we know is that the two most likely candidates are generally not well regarded by either their opponents or their supporters. How the elections shape up, and whether either front-runner now makes the final cut once the nomination process has run its course isn't clear. To be fair, the effects of the outcome of the election won't likely be realized until 2025, but the financial markets may be buffeted at times as the process wends its way to a conclusion come November.

We also don't really know what central banks will do in 2024. Financial markets seem to be gambling that the Fed and other central banks will soon be slashing rates, but that's certainly not a sure thing even if the chances for it are improved. Just as declining inflation has helped central bankers to feel more confident in their assessments, a string of less supportive data -- or even surprising economic strength -- could see them reassess their stances regarding future inflation, and "higher for longer" may actually turn into "longer" as a result.

Conversely, and with plenty of yet-to-be realized drag from higher rates, re-starting student loan payments, a sluggish manufacturing sector and other headwinds, it's not difficult to find forecasts calling for recession in 2024. However, even if one should show, how this would affect central bank decisions as they try to wring out inflation here and elsewhere isn't really clear.

As always, and despite known and yet-unknown challenges, we hope for the best in the coming year. Here's to a healthy, prosperous and peaceful 2024.

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