With mortgage rates and home prices historically high and inventory very tight, many prospective sellers and hopeful buyers feel nervous about the 2024 housing market.
According to Redfin, the median sale price for a home in Massachusetts was $594,600 in November 2023, a 6.2% year-over-year increase. And as of early November, the average mortgage rate was 7.69 percent — thankfully no longer above 8 percent, but still hovering around 20-year highs.
Home prices, mortgage rates, and inventory levels are all factors that will help shape the Massachusetts housing market in 2024. Curious where these trends may go? Let’s take a look.
Will Interest Rates go up or down? (mortgage rates tend to work in tandem with the Fed Rate)
The Federal Open Market Committee meeting on December 13, 2023, left interest rates unchanged in their final policy decision of 2023 and forecast that they will cut borrowing costs three times in the coming year, a sign that the central bank is shifting toward the next phase in its fight against rapid inflation.
Interest rates range from 5.25 to 5.5 percent, where they have been since July. After making a rapid series of increases that started in March 2022 and pushed borrowing costs to their highest level in 22 years as of this summer, officials have held policy steady for three straight meetings.
That patient stance has given policymakers time to assess whether interest rates are high enough to weigh on the economy and ensure that inflation will slow to the Fed’s 2 percent target over time — and increasingly, slowing inflation and a cooling job market have convinced them that policy is in a good place.
During his news conference on Wednesday, December 13, Jerome H. Powell, the Fed chair, said that officials were no longer expected to raise interest rates again.
In fact, Fed policymakers projected on Wednesday that they would lower borrowing costs to 4.6 percent by the end of 2024, down notably from their previous 5.1 percent estimate, which was released in September. The forecast implies that officials will make three quarter-point rate cuts next year.
On Tuesday, December 19, the average mortgage rate for the benchmark 30-year fixed mortgage was 7.18%, down 50 basis points from the average mortgage rate in November.
What about the Boston Rental Market? Some experts predict that the rental market in Boston will continue to tighten in 2024. Others expect the 2024 housing market to mirror 2023’s trends, with generally stable prices and reduced sales volume.
Demetrios Salpoglou, CEO of the online real estate marketplace Boston Pads, said Greater Boston’s tight rental market will get closer in 2024. “We’ve already seen huge demand,” Salpoglou said, “and we’ve already rented properties for June and September 2024. It’s been a robust market. The vacancy rate in the city of Boston is 0.65 percent — under 1 percent. A healthy vacancy rate, where renters get more leverage, is around 6 percent.”
Population Trends Massachusetts was one of 11 states that saw its population bounce back and grow this year after posting a decline in 2022, the U.S. Census Bureau said Tuesday, December 19, as it released new data that show population trends and migration patterns have returned mainly to pre-pandemic norms.
Are people looking to move out of Massachusetts? Nationwide, 24% of homebuyers searched to move to a different metro area between Oct ’23 and Dec ’23. California, New York, Illinois, Massachusetts, and Washington were the top 5 states homebuyers searched to move from.
Will Bidding Wars Still Be with Us in 2024? In general, bidding wars have been dropping as mortgage rates have increased. In many markets, bidding wars were virtually nonexistent. Not so in Greater Boston was 5th nationwide with the highest percentage of bidding wars; 67.8% of homes had a bidding war in 2023, down from 71.2% in 2022. In many markets, bidding wars were virtually nonexistent. In Greater Boston, look for the percentage of bidding wars to decline somewhat in 2024, especially if interest rates stay above 6%
Will Cash Buyers be Prominent in 2024? Nationally, one in three U.S. homes sold last year was purchased entirely with cash, per ATTOM, a real estate data firm. A cash sale means there was no reference to a mortgage on the deed. According to a Redfin analysis of home sales in 40 of the nation’s most populous metropolitan areas, cash sales accounted for 34.1% of all sales in September. That’s up from 29.5% a year earlier and the highest share in nearly a decade.
The study did not offer datasets for the Boston area in 2023; in 2022 Boston metro area, 27.5% of home sales were cash sales, compared with 21.6% in 2019, according to ATTOM, Offers from individuals accounted for the majority of the cash deals in 2022, the data shows. Corporate investors made up the remainder.
Cash sales will continue to play a role in home sales for 2024. If interest rates fall below 6%, then the percentage of cash sales will decrease.
Will housing sales decline? While home prices held firm this year, sales volume has softened considerably. Home sales in Massachusetts for November 2023 were 4,970, representing an 11.8 percent drop over last year. However, these percentages may pivot in 2024 if mortgage rates slide further.
“Retreating mortgage rates will bring more buyers and sellers to the market and get Americans moving again,” says NAR chief economist Lawrence Yun. At a NAR conference in November, Yun predicted that sales would rise by as much as 15 percent next year.
“Housing sales are expected to increase a bit from this year,” says Chen Zhao, who leads the economics team at Redfin. “However,” she qualifies, “we are not expecting sales to increase dramatically, as rates are likely to remain above 6 percent.”
“Lower mortgage rates would help spur home sales activity, which are expected to increase in 2024 compared to 2023,” says Selma Hepp, chief economist at CoreLogic. “Declines in mortgage rates will drive more sellers to trade their existing home and help add much-needed inventory to the market, leading to more transactions.”
Will housing inventory increase? Concerning much-needed inventory, the housing supply has been meager throughout 2023 thus far. As of November, The number of existing homes on the market for sale sat at 11,378 units, an 11.3 percent decline since last year. That figure represents only a 2-month supply short of the 4 to 6 months usually needed for a balanced market.
“There are simply not enough homes for sale,” says Lawrence Yun, Chief Economist, National Association of Realtors (NAR). “The market can easily absorb a doubling of inventory.”
For inventory levels to improve significantly, there would need to be either a surge of homeowners listing their existing properties or a considerable amount of new-construction homes hitting the market. While both seem relatively unlikely, Yun does foresee some increase in housing inventory for 2024. “There will be more home construction, and more existing homeowners will be willing to sell and give up their low mortgage rates,” he says.
Will home prices go down? Housing prices have been rising, November’s $594,600, a 6.2% year-over-year increase. That figure was $46K short of the highest median home price ever recorded in Massachusetts ($640,600, set in June 2023).
So, will housing prices drop in 2024? Probably not, says Yun: “Home prices will rise around 3 to 4 percent,” he predicts.
Prices are intricately connected with housing inventory, as well, notes Zhao. “Sellers are likely to remain reluctant to give up their low-interest rate for a much higher one, so inventory will remain constrained,” she says. “As more time passes, more homeowners may be ‘forced’ to sell due to life events, so inventory may rise from the current anemic levels, but it’s unlikely to increase much. That means that prices are unlikely to fall year-over-year unless demand falters.”
Will 2024 be a buyer’s or seller’s market? In today’s market, tight inventory gives sellers the upper hand. There are more buyers than homes available, so each house on the market becomes more of a hot commodity than it might if there were more options. With a significant uptick in inventory, the seller’s market seems likely to stay the same next year.
“The current significant shortage of inventory suggests it would be hard to [become] a buyer’s market anytime soon,” says Hepp.
“Given expectations about interest rates and supply, demand will probably exceed supply similar to current conditions,” Zhao says. “Supply will likely remain below what we deem a balanced market.”
“The plague of low inventory won’t be cured in the short-term, but demand will suffer from high mortgage rates, bringing about more of a balanced market in 2024,” says Bankrate Chief Financial Analyst Greg McBride. “Sellers may find themselves making concessions on closing costs or rate buydowns more often in 2024, and buyers should be wary of biting off more than can be financially chewed.”
The bottom line on the 2024 housing market Historically, high mortgage rates, steep home prices, and low inventory levels are lining up to make the 2024 housing market as challenging for buyers and sellers as it was in 2023. But if rates cool in 2024, as some experts predict, market activity should heat up in response.
The complexities of the current conditions mean that now more than ever, it’s wise to lean on the guidance of an experienced real estate agent. Let the Hickman-Coen Home Team lead the way if you want to enter the market in 2024, whether as a buyer or a seller.
Compare our predictions to our 2023 predictions
Sources for this article.
With rate hikes likely done, Fed turns to the timing of cuts, – Reuters
https://www.reuters.com/markets/us/fed-likely-hold-rates-steady-signal-couple-cuts-2024-2023-12-13/
Housing Market 2024 | Bankrate. https://www.bankrate.com/real-estate/housing-market-2024/
The 2024 outlook for home buyers and renters – Boston Agent Magazine https://www.boston.com/real-estate/home-buying/2023/12/27/the-2024-outlook-for-home-buyers-and-renters/#:~:text=’Huge%20demand’%20in%20rental%20market,for%20June%20and%20September%202024.
NAR Chief Economist Lawrence Yun forecasts Existing Home Sales Will Rise by 13.5% – National Association of Realtors
https://www.nar.realtor/newsroom/nar-chief-economist-lawrence-yun-forecasts-existing-home-sales-will-rise-by-15-percent-next-year
What Is the 2024 Economic Outlook for the Property Industry – Corelogic https://www.corelogic.com/intelligence/2024-economic-outlook-for-the-property-industry/
Economic Roundtable speaker to discuss U.S. Housing Market – Marietta Times
https://www.mariettatimes.com/news/2023/11/economic-roundtable-speaker-to-discuss-u-s-housing-market/
Federal Open Market Committee; – Federal Reserve https://www.federalreserve.gov/monetarypolicy/fomcpresconf20231213.htm
Massachusetts Migration and Population – WWLP-22 News Springfield
https://www.wwlp.com/news/massachusetts/migration-fewer-deaths-fuel-small-mass-population-increase/#:~:text=Our%20population%20is%20instead%20decreasing,are%20recent%20graduates%20and%20families.%E2%80%9D
Housing Market in Review 2023 – Redfin
https://www.redfin.com/blog/housing-market-year-in-review-2023/