On paper, 2023 was a solid year for the U.S. economy: Inflation slowed while unemployment stayed low, and the new year could will bring even more progress.
The annual inflation rate is projected to fall to 2.1% in 2024, just a notch above the Fed’s long-run target, according to a recent report from the Congressional Budget Office. Ask inflation-weary Americans how they feel about the economy, though, and you’d probably get two thumbs down.
Alas, consumers likely won’t be seeing the return to pre-2021 prices they might be hoping for in 2024. While Goldman Sachs’ 2024 outlook says that the hard part of the inflation fight looks like it’s over, Americans should expect more of a slowing of price growth called “disinflation.” In other words, inflation will continue cooling off over time — and that's different from deflation, or a sustained drop in prices.
That said, forecasters expect a few goods and services in particular to finally see a little price relief this year. Here’s what’s expected to get cheaper as we head into 2024:
1. Gas prices
The yearly national average gas price is expected to drop from $3.51 per gallon in 2023 to $3.38 this year, according to price comparison app GasBuddy’s fuel price outlook. The year is starting out on a high note, with January expected to see 2024's lowest prices at $3.11 per gallon on average.
Prices will likely peak in May at an average price of $3.67 per gallon, with a small (but short-lived) possibility of prices reaching $4 per gallon. In some cities on the West Coast, where drivers are more likely to see massive price increases due to a smaller number of gasoline refineries, gas could briefly climb above $6 per gallon.
There will still be some volatility in prices as outages, disruptions and severe weather occur, according to the GasBuddy report. The Russian invasion of Ukraine and conflict in the Middle East could also affect prices, but it’s looking like the frighteningly high numbers drivers saw at the pump in 2023 are in the rearview mirror.
2. Domestic airfare
Hoping to take a trip in 2024? Last year, international travel saw a massive uptick as global COVID restrictions finally fell away. Those in need of a vacation may want to opt for a domestic trip: Travel booking app Hopper anticipates that domestic airfare will be much cheaper than 2023 — and even pre-pandemic prices — over the next 6 months.
Plane tickets are about 11% cheaper right now than they were last year, at an average of $285 a piece. The average domestic ticket price is expected to heat up to about $302 as we enter the spring travel season in May. January will be the cheapest month to take a domestic flight until fall, so now may be a good time to be a little spontaneous and book a winter getaway.
If you’re determined to take an international trip, Hopper says airfare to Mexico and Central America has dropped about 10% compared to this time last year, and South American airfare has declined about 4%.
3. Electric and (maybe) new vehicles
Between record-breaking new and used car prices and rising auto insurance premiums, car buyers have had a rough go at it the past few years. But sales of electric vehicles increased in 2023 thanks to EV tax credits and an oversupply at dealerships — and as customer acceptance continues to grow, automotive services company Cox Automotive expects dealers will start pushing more incentives and discounts to entice buyers.
Although fewer EVs are eligible for federal tax credit this year (and even fewer for the $7,500 maximum), there over a dozen electric and plug-in hybrids that still qualify, including the Ford F-150 Lightning pickup, the Tesla Model 3 Performance and a few versions of the Model Y. The credit can now be applied as a discount when you purchase a qualifying EV instead of waiting to claim in on your taxes.
While Cox doesn’t anticipate prices for new or used vehicles to fall to what they were in 2019, the company says the new vehicle supply shortage that pushed prices to new heights in 2022 and 2023 is finally over. The surge in inventory will bring prices closer to pre-pandemic norms and increase discounts and incentives.
“Affordability will continue to improve, as household incomes increase, loan rates stop increasing (and maybe come down some), and vehicle prices in new and used react to the market’s undeniable downward price pressure,” Jonathan Smoke, chief economist at Cox, said in the company’s 2024 outlook.
4. Home prices and mortgage rates
Record-breaking mortgage rates and housing prices stonewalled homebuyers in 2023, resulting in a slump in sales and last-minute cancellations of deals. The new year isn’t looking like it will be much better, but prices and mortgage rates may cool off a bit, according to a housing market forecast from brokerage Realtor.com.
Realtor.com expects the typical monthly purchase cost for a median-priced home listing to drop slightly from $2,240 in 2023 to $2,200 this year — about 35% of the average U.S. household income. It’s not much of a decline, but the slight gain in affordability is expected to give some buyers an advantage.
With inflation expected to continue falling 2024, the Fed will likely start cutting interest rates by the end of the year. Realtor.com experts forecast mortgage rates will drop to 6.8% on average and reach 6.5% by December. Rates reached a high of 7.79% in 2023, so that’s a significant improvement (albeit nowhere close to the 4% average between 2013 and 2019).
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