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Some semblance of a buyer's market in real estate could finally be on the way in 2024, bringing to a close a year of low inventory and record high prices. But don't get too excited; it will likely be a slow change.
That's according to housing market predictions from real estate companies Redfin and Zillow. Both are forecasting that buyers will see some improvements in terms of inventory and prices as we get into 2024. However, both say that mortgage rates will remain stubbornly high, hampering the speed at which real estate will return to normalcy.
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View RatesHousing market predictions for 2024
Here are some of the biggest housing market predictions made by Redfin and Zillow at the end of last year:
Listings and home prices will reverse from current trends
The best news for homebuyers is that prices are expected to start inching back downward this year. Throughout 2023, prices rose to new record highs seemingly every month. Meanwhile, homes for sale remained few and far between thanks to a record low inventory caused by high mortgage rates "trapping" owners in their current mortgages.
Redfin and Zillow expect both price and inventory trends will reverse in 2024. Potential home sellers will "grow weary of waiting for the historically low rates of 2021 to return," Zillow predicted, leading to more listings. At the same time, the increase in supply will stoke more competition between sellers and help to send home prices back down, to the benefit of buyers.
All said, though, price drops will likely be marginal. Zillow called for a decrease of just 0.2% through the end of the year, while Redfin expects a decrease of about 1%. Even if the drops are small, they're obviously better than price increases.
Mortgage rates will fall, but not by much
The bad news for both buyers and sellers is that mortgage rates aren't expected to drop all that much in the near future. These rates are affected greatly by the Fed's interest rate policy, and many experts are predicting that interest rates won't decrease until late 2024. That means that mortgages are likely to stay put, for the most part.
Redfin predicted that rates will only drop to about 6% at best, down from their current rate of over 6.6%. Zillow said only that the rates will have some definite "staying power."
So, while prices might decrease, buyers will still be saddled with new home loans that are far less favorable than the 2% to 3% loans of two years ago. Separately, Realtor.com recently predicted that mortgage rates in 2024 will average 6.8% for the year and reach 6.5% by year's end.
Renting will become more popular
Because mortgage rates will stay fairly high and prices will be slow to fall, both companies say more potential buyers will embrace renting. Redfin pointed to a June 2023 survey, which showed that one in five millennials expect to never own a home, as evidence of this change in attitude.
Zillow went so far as to predict that the new "starter home" will be the single-family rental, rather than a purchased house, since buyers will want to enjoy amenities like private backyards that many of the cheapest homes for sale don't offer. It also predicted that urban areas will start to see a surge in renters as the price gap between previously more affordable suburban and urban rental costs continues to narrow.
The homebuying process could become cheaper and more streamlined
Redfin expects homebuyers to benefit from increasing competition among real estate agents this year. In its report, Redfin agents say they have noticed "widespread discounting among our competitors in 2023, if not in the fee publicly offered to the buyers’ agent, then in commission refunds or in private listing agreements." The company expects the competition between buyer agents to lead to more negotiation over commission fees, to the benefit of buyers.
It's true that transparency and increased competition in commission costs have been growing trends. But the fallout from a recent class action lawsuit against the National Association of Realtors, which allegedly conspired to fix commission prices, has put lots of leverage in the hands of buyers when it comes to negotiating fees.
Redfin also expects more buyers to skip buyer agents completely in the future, choosing instead to work directly with listing agents, possibly allowing them to save even more in commission costs.
Zillow, on the other hand, sees improvements to the homebuying experience primarily through the adoption of artificial intelligence tools by buyers and agents. Already, the company noted that agents are using AI to "assist with writing listing descriptions and to create 3D content for their listings."
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