The housing market is ready for a rebound in 2024, and experts are growing more and more confident that the clouds are finally parting.
Falling mortgage rates are one promising indicator. After steadily increasing over the summer, Freddie Mac’s benchmark rate for a 30-year fixed-rate loan topped out at 7.79% in October. Since then, rates have tumbled, and are creeping towards 6% for the first time in almost a year.
There are also signs that rates will keep declining into next year: Wages have increased, the labor market has cooled and inflation may have finally steadied enough to allow the Federal Reserve to start cutting interest rates.
Taken together, these trends “[make] it more likely than not that mortgage rates have peaked,” said Chen Zhao, economic research lead at Redfin, in a recent report.
The housing market may have ground to a halt this year, but we're poised for an upswing in 2024. Here are three reasons why.
Affordability is improving
Home affordability got clobbered this year. According to Redfin, only 16% of the homes for sale in the U.S. in 2023 were considered affordable (i.e., they had a monthly mortgage payment that amounted to no more than 30% of their area’s median income). That’s the lowest share on record since Redfin started tracking the data ten years ago.
Now, falling rates are luring buyers back. At the October peak of 7.79%, the typical monthly payment on a $400,000 mortgage (excluding taxes, insurance, HOA fees and other costs) was about $2,877. At the current 6.61% rate, the average mortgage payment is about $2,557 — a savings of $320 per month.
New listings are picking up
Lower interest rates are bringing sellers back, too. According to Redfin’s report, new listings are up 9% year-over-year, the largest annual increase since July 2021, when the pandemic buying frenzy was in full force.
This trend will likely accelerate as homeowners who bought a home during that period feel less trapped or locked into their 3% to 4% rate. People who bought a house more recently — that is, buyers who didn't win the interest rate lottery — will be even more willing to part with their property.
Mortgage applications are rebounding
The number of mortgage applications homebuyers filed with lenders hit a 28-year low in October, according to the Mortgage Bankers Association (MBA). As rates have started falling, those filings have slowly ticked higher.
The pace of those applications is still pretty sluggish — the MBA says people are filing 18% fewer applications than they did in 2022 — but would-be homebuyers are getting antsy, and experts are cautiously optimistic that we'll see a swift turnaround come spring.
“Buyers are excited about falling rates,” said Shoshana Godwin, a Redfin agent based in Seattle, Washington, in the press release. “They’re raring to go.”
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