After two years of a red-hot housing market fueled by low interest rates and limited inventory, this year has ushered in unaffordability and frustration for many prospective buyers. With bidding wars and all-cash offers still pricing people out in hot spots like South Florida, Charlotte, and Denver, the dream of homeownership has begun to feel out of reach for many.
Now, as we head toward 2024, the question becomes whether any relief is in sight or if the affordability crunch will continue squeezing an entire generation out of the market. With demand still outstripping supply and builders struggling to ramp up new housing projects, the vise grip of high prices and rates shows little sign of easing up any time soon.
2023 Homebuying Challenges
While different financial and lifestyle situations led to various reasons people had challenges buying a home; three reasons stand out for most. As we live through the final months of 2023, the housing market remains marked by sky-high real estate prices, rising mortgage rates, and fierce competition paired with low inventory.
According to the Federal Reserve of St. Louis, this year's median home price is $416,100. That's a 46% increase from the 2019 median sales price of $258,000. This significant jump has created challenges for first-time buyers looking to enter the market and existing homeowners wanting to upgrade to larger homes to accommodate growing families.
Increased Mortgage Rates
In January 2021, mortgage rates were at an all-time low of 2%, and many home buyers took advantage of this. Now, mortgage rates have tripped to 8%, making affordability harder for those already struggling to find a home in their budget.
According to an article by The Mortgage Reports, "forecasting the precise trajectory of mortgage rates has become increasingly difficult. Many speculate about where rates will go in the next year or two. Some forecasting models predict that mortgage rates will average 5.00% in 2024, dropping to 4.00% in 2025."
On top of the high home prices and stubborn mortgage rates, prospective buyers also deal with the continued scarcity of available homes. The National Association of Realtors estimates the shortage to be between 5.5 and 6.8 million units.
The housing shortage has left potential buyers with limited options, thus creating fierce competition and bidding wars to find a home. Experts link the ongoing housing shortage to factors including inflation, production disruptions due to COVID-19, and people moving from urban areas, like New York City and Los Angeles, to more affordable rural areas.
Is 2024 the Year to Buy a Home?
With mortgage rates hovering around 8%, the highest in over 20 years, 2024 home buyers will continue facing affordability challenges. Though rates may inch down slightly, they remain elevated compared to historical averages.
Projections show home values growing 3-5% yearly, easing but not drastically cutting costs for buyers. Some expect inventory to increase slightly as more existing homeowners list properties but still remain lower than pre-pandemic levels.
New Construction in 2024
In this environment, new construction may offer the best value proposition. Builders are currently providing discounts and incentives up to 10% off in some cases to increase sales. By opting for a new home, you can lock in today's rates before additional increases and take advantage of savings rarely seen in the resale market.
New construction also allows customization to suit your needs rather than inheriting another owner's outdated layout and finishes. Current code regulations require new homes to incorporate energy-efficient features like appliances, solar panels, and windows. Furthermore, new construction communities often offer amenities like trails, recreational facilities, and warranties.
While resale home shoppers will likely still encounter bidding wars, new construction puts leverage back in the hands of savvy 2024 buyers. By capitalizing on builder incentives and allowing personalization, new homes offer an affordable avenue to your dream home even as affordability remains hard to attain.
These promotions won't last forever, so 2024 represents an opportune time to consider new construction. Your new home is within reach, so start your search today!