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- Housing market conditions should improve throughout the rest of 2024. But prices are likely to continue climbing.
- Mortgage rates are expected to go down this year, which should help boost demand.
- Most major forecasts predict that home prices will end 2024 between 4.1% and 6.1% higher than the year before.
The 2024 homebuying season has been a tough one, leaving many hopeful buyers wondering if they'll ever get an opportunity to purchase a home.
While a housing market crash remains unlikely and home prices probably won't drop anytime soon, it is starting to look like it will get easier to buy a home soon.
How should borrowers expect the housing market to evolve throughout the rest of the year? Let's take a look at the latest predictions.
Overview of the 2024 housing market
In the first half of 2024, homes became more expensive than ever, mortgage rates seemed stuck near 20-year highs, and housing inventory stayed tight. As a result, interest in buying a home remained relatively low.
Average home values have increased 3.3% year over year to $362,481, according to Zillow. The average 30-year mortgage rate was 6.05% in August, a significant drop from the month before.
Rates should continue to trend down in the coming months, setting up for a much better homebuying season in 2025.
Why are home prices so high?
Real estate is an appreciating asset, which means that home values typically increase over time. Though they do drop occasionally, like they did during the Great Recession, prices have historically trended up.
Home prices, like a lot of things, are driven by supply and demand. During the pandemic, demand for homes shot up as mortgage rates fell and people had more money to spend. As a result, prices started rising faster than normal.
Low supply only made affordability worse. Short-term trends may have played some part in this, since many sellers delayed listing their homes during the pandemic, either due to COVID concerns or out of a reluctance to enter a frenzied market as a buyer.
Together, these forces caused home prices to climb at an astonishing rate. Now that they're so high, many are wondering if they'll ever come back down. But because supply is chronically tight, any drops we might see would likely be relatively moderate.
Key trends shaping the housing market in 2024
Economic factors
The consumer price index, a key measure of inflation, peaked at 9.1% year over year in June 2022. This led the Federal Reserve to start aggressively raising the federal funds rate to bring inflation back down. High inflation and pressure from the Fed's hikes helped push mortgage rates up, slowing homebuying demand.
Fortunately, inflation has since cooled substantially, rising just 2.9% year over year in July 2024, and the Fed is expected to start lowering its benchmark rate in September.
Mortgage rates
Though mortgage rates have been trending down in recent months, they're still higher than what many homeowners and buyers are used to. From 2010 until 2020, the average 30-year mortgage rate was 4.09%, according to Freddie Mac data. Then, during the pandemic, rates dropped even lower, reaching an all-time low of 2.65% in January 2021.
Because rates have been so high in recent years, many would-be buyers have refrained from entering the market. This has helped moderate the pace at which home prices rise, but it's also kept sellers from listing their homes, since many have mortgages with low rates and are reluctant to give that up. This lock-in effect constrained housing supply and helped keep prices from falling, even as rates spiked.
Housing supply and demand
Low housing supply is a chronic problem in the U.S. And it's a big part of why homeownership continues to get more expensive each year, even as demand has been sluggish.
Doug Duncan, Fannie Mae's senior vice president and chief economist, says most analysts believe the lack of supply has driven the dramatic price increases we've experienced over the past few years. From the start of 2020 to now, the average home price has grown by more than $110,000, according to Zillow data.
"Starting back in 2015, house prices since then have been appreciating at significantly faster than the long term average," Duncan says.
In its 2021 research note "Housing Supply: A Growing Deficit," Freddie Mac estimated that the U.S. was 3.8 million units short of a healthy housing supply. The problem is especially pronounced when it comes to entry-level homes.
There are two main ways to add to the housing supply: listing existing homes for sale, and building new ones. Part of the problem is that the baby boomer generation is holding onto a lot of real estate, and they aren't leaving their homes to live in retirement communities or assisted living facilities at the same rate previous generations have.
"Right now, the boomers are doing what they said they were going to do, which is aging in place," Duncan says.
That's not to say it's a bad thing that older adults are able to remain independent for longer, often thanks to advances in technology and telehealth, but it cuts off a key source of inventory that isn't added elsewhere. When younger adults sell their homes, for example, they're typically also looking to buy another, increasing turnover, not supply.
The bigger problem is that new homes aren't being constructed at a fast enough pace to meet demand. According to the Freddie Mac research note, "The main driver of the housing shortfall has been the long-term decline in the construction of single-family homes."
Duncan says that the Great Recession destroyed around 75% of the housing supply chain. During this time, nobody was building houses, so a lot of workers exited the industry, and many businesses shut down.
The supply chain is still recovering from this, and after decades of underbuilding entry level homes, builders are having a hard time meeting demand for affordable inventory.
Predictions for 2024 housing market
Price trends: Will home prices drop in 2024?
Most major forecasts don't expect home prices to drop in 2024. Here's where some of the major industry players think home prices will end up by the end of the year:
| Forecast | Expected home price change in 2024 |
| Fannie Mae | +6.1% |
| National Association of Realtors | +4.1% |
| Mortgage Bankers Association | +4.5% |
According to these forecasts, home prices could rise anywhere between 4,1% and 6.1% by the end of 2024.
Looking even further ahead, the Mortgage Bankers Association believes that prices will increase another 2.9% in 2025, and Fannie Mae believes we could see prices rise 3.0%. NAR estimates that prices could increase about 2.0% next year.
Of course, it's hard to say with certainty what will happen in the coming months and years. In January 2023, many experts were expecting prices to fall a bit to compensate for the unusually high increases we saw in the previous two years. But based on what we know right now, it's unlikely that home prices will drop soon.
Local housing market forecasts
The U.S. housing market is made up of a bunch of smaller, local markets that all have their own trends and influences. So even though home values are expected to rise overall throughout the next couple of years, it's possible prices could ease slightly in your area. This is especially true in places where home prices boomed during COVID and are due for a correction.
For example, home prices in Austin, Texas have been steadily declining since they peaked in mid-2022 and are now down 4.3% year over year, according to Zillow.
You can use an online listing site like Zillow or Redfin to see what the housing market looks like near you, or talk to a local real estate agent to get a sense of how prices are likely to trend in your community in 2024 and beyond.
Is it a good time to buy a house?
So, is now a good time to buy a house? Duncan says that his answer to this question is the same now as it was 20 years ago: If it fits your budget, it's the right time to buy.
"Because you don't know whether interest rates are going to go up or down in the long term, and you're simply making a housing decision, as opposed to an investment decision," he says.
For most people, it's not about trying to time the market.
"A lot of us are just buying a house to live in and take care of our household and family and all that," Duncan says.
Many hopeful buyers are planning to wait for mortgage rates to go down before jumping into the market. While this will definitely make getting a mortgage more affordable, you could end up facing even higher home prices by the time mortgage rates come down.
One advantage to buying now is that you'll avoid the inevitable increased competition and higher home prices that come with lower mortgage rates. Plus, you can save down the road by refinancing into a new mortgage once rates have dropped.
In fact, some lenders are even offering "buy now, refinance later" deals for those who buy when rates are high.
If you're considering buying now, be sure to shop around and compare offers to find the best mortgage lender for you. By getting multiple quotes, you can ensure you get a good deal.
Will home prices drop FAQs
For the rest of 2024, the housing market should be helped by decreasing mortgage rates, but inventory will likely remain tight. Lower mortgage rates combined with low supply could push home prices up further.
Interest rates on mortgages are expected to ease throughout the remainder of 2024, but we may not see them drop substantially until next year. So while we may see a small increase in demand due to lower rates, many potential borrowers appear to be waiting for rates to drop further before entering the market.
The housing market will likely continue to be a challenge for both buyers and sellers in 2024, though conditions should improve somewhat as mortgage rates drop. But 2025 will likely be a better year for the housing market.
Most experts don't believe home prices will drop — though the pace of increases could start to slow in 2024 and 2025. We'll probably see prices increase modestly throughout the next couple of years.
You probably shouldn't wait for a recession to buy a house. There's no telling when a recession might happen, and if it does, it might not significantly impact home prices. Additionally, a recession could put you in a place where you can't afford to buy a house, even if prices do come down.
Home prices are high now and they're expected to rise a bit further in 2024, so whether you should sell now or later largely depends on how selling fits into your plans. Keep in mind that if you plan to buy another home, you'll have to deal with today's mortgage rates, which are still relatively high. But rates have been trending down, and they're expected to continue falling.
A housing market crash would make homes cheaper, but the reality for homebuyers isn't as simple as that. A market crash would likely cause economic distress in other sectors as well, making people less able to afford to buy a home. Experts don't expect the housing market to crash in 2024.
