What's Going To Happen To Real Estate in 2024?

As 2023 comes to a close, I like to take a look back at the year that was.

For many buyers, this was a very tough year!  Many first time home buyers got completely priced out of the market - both with high prices as well as the high interest rates!  And, this year, as in past years, a lot of people ask me what I think is going to happen to the real estate market in 2024!  Are we going to have a real estate crash like in 2008?  Are prices going to come down in 2024?  Are interest rates going to come down in 2024?

Well, I am definitely not a fortune teller and I definitely don't have a crystal ball.  But I have been a full time Realtor since 1996 here in Richmond, so my years of being a Realtor has given me a little bit of a perspective on the Richmond real estate market.  I have been through what I would call a normal market, I went through the really strong sellers market followed by the really bad downturn followed by a normal market and then to a pandemic real estate market and now into this very strange market of high prices AND high interest rates!

So, there are a lot of experts out there that give a lot of predictions about 2024!  I don't know if any of them are right or wrong!  But here is what I think when I look at the Richmond area over the years! 

HOME PRICES WILL CONTINUE TO RISE

• December 2021 average home price:  $370,920
• December 2022 average home price:  $407,820 (up 9.9% from previous year)
• November 2023 average home price:  $457,757 (up 12.2% from previous December)

As you can see, prices in the Richmond area continue to go up.  I do not see this changing soon, so I would expect to continue to see prices going up!  Why did housing prices continue to go up?  Mainly, I think, due to inventory levels continuing to remain very very low.  We saw multiple offers on listings, many buyers paying cash, waiving appraisals (or paying the difference between the purchase price and the appraisal price if the appraisal was low).  We saw buyers even forego doing inspections.

INVENTORY LEVELS WILL REMAIN VERY LOW

• December 2021 # homes for sale at month end:  977 homes (.6 months supply of homes)
• December 2022 # homes for sale at month end:  1,390 homes (1.1 months supply of homes)
• November 2023 # homes for sale at month end:  1,692 homes (1.6 months supply of homes)

As you can see, although the number of homes available at the month's end has increased each year, it is still well below what is needed to be considered a balanced real estate market.  As of the end of November 2023, there was less than 2 months supply of homes on the market - this means that if no other homes come on the market, it would take less than 2 months for all those homes to sell.  A balanced market is one in which there is anywhere from 3-6 months of inventory available.

MORTGAGE RATES SURGED BUT SHOULD DROP SLIGHTLY

• 2021 Mortgage Rate:  3.15% (per Bankrate.com)
• 2022 Mortgage Rate:  5.53% (per Bankrate.com)
• 2023 Mortgage Rate:  7.00% (per Bankrate.com)

As you can see, the mortgage rates surged higher than what most of us have had over the past years!  

WHAT EXPERTS FORESEE

Experts don't foresee much improvement in the housing inventory in housing inventory in 2024.  Builders have to increase the number of homes they are building, and a lot of homeowners who currently have a 3% mortgage need to put their homes on the market.  So in 2024 Realtor.com feels that moves of necessity, such as for job relocations, downsizing or family situation changes, will dominate resales in 2024!  

What do the experts see for home prices in 2024?

• Fannie Mae thinks that prices will go up about 2.8% by end of year in 2024
• Mortgage Bankers Association predicts prices will rise 4.1% by end of year 2024
• National Assoc of Realtors predicts prices will rise by about .7% by year end 2024
• Realtor.com predicts that prices will actually drop by about 1.7% by year end 2024

And what do they think will happen with interest rates in 2024?

• Fannie Mae thinks interest rates will reach 6.5% by end of year 2024
• Mortgage Bankers Association thinks they will reach 6.1% by year end 2024
• National Association of Realtors predicts rates going to 6.3% by end of year 2024
• Realtor.com predicts rates to reach 6.5% by end of year 2024

One piece of good news is that the Fed has indicated that it will start cutting the federal funds rate next year - that will help relieve any pressure on mortgage rates.  But it all depends on what happens with inflation!

HOME SALES IN RICHMOND

Home sales throughout the Richmond area has definitely declined over the past few years

• 12 Months ending December 2021:  10,998 homes sold in Richmond MLS
• 12 Months ending December 2022:  8,767 homes sold in Richmond MLS
• 11 Months ending November 2023:  7,866 homes sold in Richmond MLS

IS IT STILL POSSIBLE TO BUY A HOME IN 2024?

So, you may be thinking - "is it still possible to buy a home in 2024, especially if I'm a first time home buyer?".  I would say YES!  It is a great time to buy a house!  Even with prices going up and the interest rates higher than they had been only a few years ago!  Why?

• There are great programs out there for first time home buyers - many banks have put together their own down payment assistance programs and many of these can be coupled with other programs that are available through non profits!
• If you have VA eligibility or are buying a property in a location that can qualify for Rural Development Financing, then you can go in with 100% financing, and, in the case of VA, no Mortgage Insurance!
• There is the Virginia First Time HomeBuyers Savings Account that can be used to help you save for that down payment!
• Many lenders are now offering 2/1 buydown loan options which would allow the buyer's payment to be lower for the first 2 years of their homeownership!
• If you buy a house before you have sold your current home, you may be able to use that equity to do a recast of your mortgage on the new home!
• If you have some money, but not quite enough to put down the full 20% and you don't want to pay the mortgage insurance each month, an option for you may be to pay for the mortgage insurance upfront! 

As you can see, if the experts are correct and the interest rates in 2024 begin to trend down to a low to mid 6% range, there are options for you, even if house prices continue to go up!  

If buying a house in 2024 is on your to do list next year, and you want to discuss your options, feel free to reach out and let's talk!