With a slowdown caused by high-interest rates, limited inventory, and elevated home prices, the housing market in 2023 was unlike anything we’ve experienced before. Homeowners benefited from a seller’s market, taking advantage of low inventory and motivated buyers. However, for first-time homebuyers, entering this market remained challenging due to high-interest rates and limited homes to buy. Real estate agents also faced increased competition due to the low market activity.
And now, all eyes are on what 2024 has in store. Predictions are hinting at some rays of hope on the horizon – a possible dip in interest rates by the end of 2024. Could this be the relief pill the market needs to stimulate housing activity and take the heat off home prices?
Will we see interest rates come down in 2024?
Experts predict a decline in rates by 2024. By the end of 2023, rates did decrease, but not as much as desired. Homebuyers still seek rates similar to those in 2020, leading to the rise in popularity of the buydown strategy. However, in 2023, rates only dropped by 1 percent, and further reductions are not expected until the second quarter of 2024.
According to Joshua Rodriquez from Money Watch, “The good news is that inflation is cooling, and many experts expect interest rates to move in a downward direction in 2024. Then again, a two-point drop would be significant, and even if rates fall, they’re not likely to get down to 5% within the next year. “
As interest rates drop, mortgages become more affordable, making homeownership more accessible to many. Ben Verde from Inman stated that 62% of homeowners have an interest rate below 4%. This indicates that 38% of homeowners currently hold an interest rate above 4%. With that being said, there is a significant opportunity in the market for inventory to increase if interest rates come down near 5.5-5% in 2024.
Pro Tips for Buyers:
Heading into 2024, purchasing a home requires strategic planning. According to expert advice from the Young Team, prospective buyers should consider relocating to a lower-priced housing market if job flexibility or remote work options are available. Being prepared is key, and they suggest having all necessary documents in order, reviewing your financial situation, shopping around with multiple lenders, and improving your credit score. Staying ahead of the competition is crucial, and regularly checking prices and listings enables buyers to make informed and timely decisions. Additionally, understanding the full monthly payment, including taxes, and ensuring it aligns with your budget is a fundamental step in the buying process.
Buyer preferences are changing. Proximity to schools and workplaces is now a top priority. Sustainability is gaining importance, with home seekers looking for properties that maximize natural light and minimize artificial lighting.
Where are housing prices headed in 2024?
One of the main reasons housing prices remain high is the limited inventory in the market. The scarcity is partly caused by interest rates. If rates decrease, there is potential for a slight cooling off of home prices, which could encourage more homeowners (especially the 38% with interest rates above 4%) to consider entering the market. The more homes in the market, the less likely the chance of prices increasing.
In Northeast Ohio, the seller market reduced by 17% in 2023, while home prices went up by 5.9% year-to-date, and rent increased by 9%, leading to multiple offers on homes in our area.
We expect inventory to rise by March during the busy Spring Market. If rates continue to decrease, this expectation is highly likely to be fulfilled, resulting in increased market activity in the spring.
Pro Tips for Sellers:
If you’re planning on selling your home in 2024, collaborating with a real estate agent is essential to determining the right pricing strategy, fostering buyer competition, and achieving a faster sale. Taking proactive measures to prepare your home for sale is crucial, emphasizing the importance of presenting it in its best possible condition. Online presence continues to matter most when marketing your home, and enhancing your home’s virtual curb appeal through 3-D tours or interactive floor plans can significantly increase page views and saves. These features not only engage potential buyers but also contribute to a more efficient and successful selling process.
How is new construction impacting the market?
This past November showed promising signs for new construction. The number of new homes that broke ground exceeded October’s numbers by 15% and was 9% more than in November of last year, according to an article by Investopedia. The largest number of new construction homes started in May of this year.
In the greater Cleveland area, we saw an increase in homebuyers looking to build, leading to a 5.9% rise in land value compared to 2020. Some reasons for opting for new constructions include first-time home buyers, retirees, growing families, and relocations.
Builders have capitalized on the limited housing supply by investing in the construction of affordable single and multi-family properties. In the Northeast Ohio area, builders are offering incentives like low-interest rates and cash incentives for upgrades. This is helping more homebuyers enter the market.
Final Thoughts:
Despite the challenges, consumers have displayed remarkable resilience. Even in the event of a recession, it is expected to be less severe than the 2009 downturn. This potential milder recession may lead to a decrease in interest rates, providing much-needed relief to the market.
On the other hand, Northeast Ohio has been recognized as one of the top real estate markets in the nation for 2023. The region attracts buyers with its quality of life, favorable weather, job opportunities, and stable home values.
As we look ahead to 2024, our hope is for declining interest rates, controlled inflation, and stable home prices. We anticipate witnessing the positive outcomes of lower interest rates and resolved inflation by the end of 2024, leading us into a robust market in 2025.
To explore all the opportunities to buy and build in Northeast Ohio, get in touch with one of our specialists.
