2024 Housing Market Predictions

In 2024, the real estate landscape is poised for shifts, impacting buying or selling a home in Huntsville, Alabama. Interest rate projections, home sales trends, new construction insights, rent forecasts, and home value expectations will play crucial roles in navigating the Huntsville housing market this year.

2024 Predictions #1: Interest Rates

Interest rates made significant headlines in 2023, impacting home affordability and sales. Looking ahead to 2024, let's start with our forecast for interest rates. The Fed has offered guidance on their plans for 2024. Even before this announcement, it seemed clear what their course of action would be. A Wall Street Journal article analyzed past Fed patterns, suggesting a potential rate cut in 2024—now confirmed by the Fed's signals.

Adding to this, it's an election year, and the intertwining of politics and the Fed unfortunately influences our economy and real estate sales. The Fed's guidance spans not just 2024 but extends into 2025 and 2026, indicating a downward trend in rates. Projections anticipate three rate cuts in 2024, followed by four in 2025 and another three in 2026. Granted, economic shifts and new data may alter this trajectory over those years. Nevertheless, it appears that interest rates have peaked and are set to decline in the coming years. Interestingly, while rates remained steady in December and the official decrease is projected for 2024, the 30-year market rates have already begun to decrease.

The reason for this lies in the connection between our 30-year rates and the ten-year Treasury rates, typically maintaining a spread of about 1.7%. However, recently, we've seen a notable difference, with a spread of about 3%. This shift is primarily due to the prevailing fear and uncertainty in the market. Loan originators are cautious not to suffer significant losses from refinances. They've already factored some of this into the 30-year market, leading to the reduction of that additional 1.3% spread. This adjustment is responsible for the current lower interest rates, even though the Fed hasn't yet lowered its rates.

Considering all this, my prediction for 2024 leans towards seeing interest rates drop around the middle of the year or towards Q3, especially as we approach the third rate cut. I expect rates to range from the mid-6% on the commercial side to the higher 5% range on the government side. Government loans like FHA and VA loans typically have lower rates compared to commercial loans. I foresee rates in the high 5% range for these government loans and around the mid-6% range for conventional loans.

2024 Predictions #2: Home Sales

Predicting lower interest rates in 2024, I believe this will drive home sales higher, both nationally and in our local Huntsville, Alabama real estate market. With the anticipated drop and continuation of decreasing interest rates throughout 2024, I expect home sales to climb. A significant driver supporting this prediction is the notable 15% increase in mortgage applications in December. This surge is crucial as it serves as a leading indicator of future sales.

Many individuals applied for loans in December, actively shopping and placing homes under contract. We've already witnessed a bustling end to December and a busy start to January. Economists from the NAR forecast approximately 4.71 million homes sold, marking a substantial increase from the previous year, though still below the peak of over 6 million homes sold nationally in earlier years. Personally, I anticipate that with potential interest rate drops to the high 5% for government loans and the mid-6% range for conventional loans, national home sales may reach around 4.5 million. Locally, I foresee a 10% to 15% increase in home sales.

One thing to consider is how it all ties back to that first prediction about interest rates. If rates drop even more than expected—let's say commercial rates go down to about 5.5% and government rates hit around 5%—I think this could change things for sellers. I believe this might prompt many of the sellers currently experiencing the mortgage rate lockdown effect to start selling again. These sellers, who are presently locked into very low interest rates, could re-enter the market which could increase our supply. And as rates settle in the mid-5% range, I also see a surge in demand coming our way.

I'd scrap that prediction if this happens. If it does, we might see sales shoot up by as much as 25% in 2024. However, I doubt it'll go down like that because the Fed wants to keep inflation in check. But if rates do drop that low, it's likely we'll see prices rise.

2024 Predictions #3: New Construction

In prediction number three, I foresee another strong year ahead for new construction. I believe they'll outperform their 2023 figures, playing a significant role in both the Huntsville and national markets' total sales.

The main difference between 2024 and 2023 lies in their reduced need to offer extensive interest rate buy-down incentives to attract buyers. This issue greatly impacted their profit margins last year. Even with the sales volume staying consistent with 2023, I anticipate higher profit margins because they won't need these substantial interest rate reductions anymore. Lower rates are already in play and expected to continue throughout the year.

It seems like a promising year ahead for new construction. Although national home builder sentiment has improved by 3 points, it still falls below the average score of 50, sitting at 37 and signaling a negative outlook. This sentiment largely stems from smaller local builders struggling with previous higher interest rates, while larger national builders are doing well, armed with plenty of lot inventory and offering necessary sales incentives.

The negative sentiment among smaller local builders impacts the overall national builder sentiment. On the flip side, larger national builders seem poised for success this year. Looking locally, many builders have stocked up on inventory, ensuring they're well-prepared to meet the anticipated buyer demand in 2024. So, expect another robust year for new construction.

Regarding home sellers, if builders maintain their prices without significant incentives like interest rate buydowns, it will positively impact those reselling homes. These incentives have been a major drag on the value of existing homes and have affected their competitiveness in the market. If builders can maintain their success in 2024 without dropping prices or offering heavy interest rate incentives, it's likely to stabilize and potentially increase home prices for those reselling their homes.

2024 Predictions #4: Rent Prices 

Let's explore the topic of rent and where it might be heading. Our viewpoint remains firm: owning a home is preferable to renting, a point we'll get into shortly. First, let's consider some stats and forecasts for 2024. About 67% of surveyed individuals anticipate rent hikes in 2024. This expectation aligns with the current scenario of high inflation and a shortage of available housing.

The reduced affordability in housing is pushing more people toward renting. However, consumers expect a significant rise in rent, around 5.6%, surpassing inflation rates. This poses a considerable challenge for first-time homebuyers trying to save for their initial home purchase.

A significant catalyst for potential legislation stemmed from a false news article claiming that Wall Street had purchased 44% of homes in the market—a claim debunked as untrue. However, investors did acquire 30% of the homes, up from 20% in 2000. A 10% increase in investor-bought homes doesn't just reflect a 10% rise from 2000; it signifies an additional 10% share in the overall market. This leap from 20% to 30% actually represents a 50% increase. A substantial portion of buyers in today's market comprises investors. However, the downside is the potential erosion of the American dream, with rent-to-own communities and numerous apartment complexes springing up in Huntsville. It's almost like a #RenterNation, where people capable of buying homes are growing accustomed to renting, despite facing continual monthly rent hikes. 

Renters face a significant challenge: their lack of homeownership hampers their wealth-building potential. Homeownership significantly influences wealth accumulation in our country, with owners' net worth approximately 40 times higher compared to renters. A few years back, the data showed a staggering difference: $6,500 for renters versus $255,000 for homeowners. With recent inflation, the average net worth of homeowners has likely surpassed $380,000.

Homeowners achieve this primarily due to two reasons. Firstly, they keep their payments fixed. When you secure a 30-year mortgage, your mortgage payment remains constant. In contrast, renters face the expectation of their rent rising by 5.6% annually—potentially doubling in just 12 years. This stability in payments is one way homeowners gain an advantage in net worth. Secondly, a portion of their payment goes toward their home's principal, coupled with tax deductions. Government policies incentivize mortgage borrowing by allowing deductions like mortgage interest on tax statements—a benefit absent for renters.

Another significant advantage lies in home appreciation. Homeowners capture the entire appreciation of the home, not just the initial down payment. For instance, a 5% increase in home value on a 5% down payment effectively doubles the invested money, resulting in a 5% net worth increase. These factors highlight numerous advantages of buying over renting.

My projection aligns closely with expectations. Anticipating a 5.6% rise in rents in 2024, nationally and specifically here in the Huntsville, Alabama real estate market, my forecast leans towards a 5% increase.

2024 Predictions #5: Home Values

In our final prediction about home values in the Huntsville, Alabama real estate market and nationally, I anticipate that if rates decrease as expected, prices will rise accordingly. Should rates bounce back to around 8% and stabilize, I foresee a drop in prices.

At an 8% interest rate, I predict a potential 5% decrease in prices. If rates hover around the 7% mark, I anticipate a rather neutral value range, where values won't significantly rise or fall. However, if our projected rates—a high 5% range for government-backed loans and mid 6% for commercial loans—come to fruition, I predict a 5% increase in home values in 2024.

There's a possibility that interest rates might drop even lower than we've forecasted. In such a scenario, I expect swift and substantial price hikes. Once again, this could lead to double-digit, possibly 10% or more, price appreciation within the Huntsville market. I don't foresee rates dropping to such low levels though.

My prediction for home values in Huntsville, Alabama is a 5% appreciation in prices throughout 2024.

2024 Bonus Prediction

For the bonus prediction, the real estate rankings for Huntsville, Alabama, and the broader Alabama market in 2023 typically release around June. Fortunately, thanks to all our past clients tuning in, we've held the top spot as Alabama's leading real estate team for the past four years.

My bold prediction is a repeat performance in 2024, securing the number one position for five consecutive years. If you're in the market to buy or sell, trust the experts—trust the #1 Real Estate Team in Alabama—to assist you with your transactions in 2024.

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