Key Takeaways
- Homebuyers shouldn’t expect market conditions to improve much in the second half of 2024, as mortgage rates are likely to remain high and supply is tight.
- Economists expect home prices to rise about 4% in the second half of the year and mortgage rates to remain around 6.5%.
- Although demand for housing is strong, high interest rates and weak economic conditions may limit new home construction.
Those waiting for a housing market bailout are unlikely to see any significant improvement in the second half of 2024.
With mortgage rates in the 7% range making it hard to get credit, fewer homes on the market and soaring property prices, homebuyers are facing an increasingly expensive housing market, a situation that economists expect to continue into the second half of 2024.
“The U.S. housing market is in a tailspin that is not expected to ease anytime soon,” Bank of America economists Michael Gapen and Jessio Park said in a recent report.
Economists see no limiting the forces that have been squeezing homebuying after the pandemic-era boom. They predict home sales will remain limited and a “lock-in effect” that discourages homeowners from moving and forgoing favorable mortgage rates will likely continue.
Supply is expected to remain limited
The number of homes on the market is likely to remain low for the rest of 2024, according to a Goldman Sachs forecast. Goldman economists expect existing home sales to fall to their lowest level since the early 1990s.
Not only are high mortgage interest rates keeping homeowners in their current locations, but the growing number of people with no mortgage or low balances is also keeping people where they are, the report said.
“We expect to see only limited progress toward solving the national housing shortage over the next 12 months,” Goldman said.
Goldman Sachs economist Lonnie Walker wrote that more single-family homes are expected to come onto the market for the rest of the year, but the gains will be modest. At the same time, construction of multi-family buildings, such as apartments and condominiums, is likely to decline this year.
Economists at Bank of America said strong demand for housing, especially from millennials, should spur new home starts, but the weak economy may keep new home starts at a plateau.
Home prices and mortgage rates likely to remain high
Economists say a limited supply of homes means prices are likely to rise. Goldman Sachs expects home prices to be 3.9% higher this December than they were last year. Bank of America sees prices rising about 4.5% in 2024 and likely to stay elevated through next year.
Economists at Bank of America say the lock-in effect could continue for another six to eight years, as they don’t expect mortgage rates to fall much, leaving fewer homeowners willing to forgo low-rate mortgages and keeping inventory available to homebuyers tight.
Mortgage rates could ease gradually if the Federal Reserve cuts interest rates this year, government lender Freddie Mac said, but rates are likely to remain above 6.5% through the rest of 2024, the lender predicted.
