2024 Housing Market Predictions Dallas Fort Worth
It’s that time of year where everyone is coming out with their predictions of what to expect in the upcoming year for the world of real estate.
Some are saying it’s going to crash. Like seriously crash and we’ll see the greatest real estate correction of our lifetime…
Some are saying it’s going to be great and buyers and sellers both will have all the things they’ve ever wanted.
So who is right?
Here’s what I know. Predicting what will happen next year is about as reliable as a crystal ball made of Jell-O. I don’t think any of us expected for us to have the year we had last year with rates going as high as they did and prices didn’t fall. We defied conventional wisdom as to what moves the levers of key indicators of the real estate market.
With all of that said, I’d advise you to take any videos with click baitey predictions of exactly what’s going to happen in 2024 with a giant boulder of salt.
But we can take some of the data and make educated guesses on what we might see the first half of next year.
First, we will start with interest rates. This one is actually an easy one because the Federal Reserve gave us an early Christmas present last week. They indicated that they will decrease the Federal Funds rate next year by 75 basis points, likely in the form of three rate reductions throughout the year, each at 25 basis points.
The big question is when will they actually do these rate reductions and when will we see them reflected in mortgage rates?
Here’s what we know. The FED holds eight regularly scheduled meetings throughout the year. Next year the first three of those meetings will be on January 31 through February 1st. Then March 21st and 22nd. And then on May 2nd and 3rd.
Depending on jobs data and CPI data, I wouldn’t be surprised if the first of those three rate cuts happen during one of those first three meetings.
But what we also know is that the mortgage markets react in advance. They react based on what they expect will happen in the future with rates. So the mortgage rates we’re getting today are actually low because they’ve already factored in an upcoming reduction in the Federal Funds Rate.
Let’s look at some of the past rate drops and what happened with mortgage rates at the time the federal funds rate dropped.
Going back in time to a pre-pandemic world. It was 2019. The Federal Reserve lowered the Federal Funds Rate 25 basis points at the July 30/31 meeting.
For the week ending on July 25th, the average rate for a 30-year fixed rate mortgage was 3.75%. The the Federal Funds Rate went down 25 bips. But look at what happened to mortgage rates. They stayed flat. And then the next week, they did go down to 3.6%.
Then at the next meeting on September 17th and 18th, they decreased the Federal Funds rate again by another 25 basis points. Mortgage rates leading up to that for the week ending on September 12th were 3.5%. Then the FED reduced the Federal Funds rate but mortgage rates went up for an average of 3.73% for the week ending Sptember 19th. The for the following week ending on September 26th, they did go down to 3.64%.
But let’s look at one more example to see if we can see a pattern. The FED met again that year on October 29 and 30th and reduced the Federal Funds rate again, another 25 basis points. Well, the average mortgage rate was 3.75% for the week ending on October 24. Then the FED meets, lowers the Federal Funds Rate, but then for the week ending October 31, mortgage rates average higher at 3.78%. However, the following week ending on November 7, they go down to 3.69%.
(Source https://fred.stlouisfed.org/series/MORTGAGE30US)
What we see is that a reduction in the Federal Funds rate is not a one-for-one with mortgage rates.
This is because mortgage markets have mostly already factored in the rate reduction because not only are mortgage markets closely monitoring the Federal Reserve for hints about upcoming changes in their approach to monetary policy, but the mortgage markets also look at economic data such as inflation, the rate of economic growth, and the bond market to determine mortgage rates. The Federal Funds rate is only one piece of the mortgage rate puzzle.
So, for all of you who are hanging on the Federal Funds rate 75 basis point reduction for next year and waiting for that last drop to hit and thinking that’s when rates will be at their lowest, well, it’s not a given that will be the exact time that rates will be at their lowest. It could happen before, it could happen after.
What is more likely is that rates will likely move a little lower but slightly ebb and flow as they always do. There’s a chance they could go down a little more next year so long as the economic data doesn’t reverse the course it has been on and inflation stays low.
So to answer the question, Will mortgage rates drop in 2024? I think it’s safe to say they will. However, there’s no way to say for certain how much they will go down and I wouldn’t be surprised if they don’t go down by much.
According to the Mortgage Banker’s Association rate projections, we’re already seeing the low rates they’ve forecasted for the first part of the year. They projected rates to be at 7% in Q1 of 2024 and then drop to 6.6% in Q2.
The National Association of Realtors forecasts rates to average 6.3% in 2024.
What does that equate to as far as a mortgage payment for you?
According to Mortgage News Daily, rates at the writing of this are at 6.64% for a 30-year conventional loan. On a $400,000 loan, that comes out to a principal and interest payment of $2,565/month.
Let’s say rates do go down to 6.3% next year. That same $400,000 loan would then only cost you $2,476 in principal and interest every month. That’s a savings of $89 per month. Now, that’s not nothing. But is it worth holding off from your purchase, especially if the right house comes along?
And we’ll get into appreciation predictions a little later, but there are predictions that home prices will go up. Let’s say they go up 2%. On a $500,000 house, that would mean a price increase of $10,000.
So would you rather pay $89 more a month now or ultimately pay $10,000 more for the house later?
Maybe that’s something to think about for you.
Now for the second prediction for 2024 - Market Demand. What will demand look like in 2024?
You may have seen me explain my “interest rate dam” in a previous video. But for a quick explanation, I’ve been explaining interest rates and demand using an analogy of a dam.
The dam is interest rates. The wall of the dam keeps going up as interest rates go up. On the other side of that wall is the pool of buyers. As a result, there is this pool of buyers is getting bigger and bigger as the wall of the dam gets higher and higher. As interest rates go down, that wall lowers slightly, and we have some buyers who will start spill over.
So we have demand increasing from buyers. It’s not flooding the market because as we previously discussed, it doesn’t appear that interest rates are going to go so low that there’s a massive drop in the wall of this interest rate dam.
There will be people who hang on and say they won’t, or maybe they can’t, move until interest rates get back into the 5s. So we’re still going to have a pool of buyers that hangs out back here.
There are also some markets that have more pent-up demand than others. Take this recent report from the National Association of Realtors. Texas has three of the top markets with the most pent-up housing demand. Dallas-Fort Worth ranks as number two on the list.
Then there’s a third thing to keep in mind. The fact that home sellers are now more likely to enter into the market as buyers.
We do have a but of a rate lock-in effect happening where a lot of sellers don’t want to sell and lose their incredible interest rate. According to Redfin research, 91.8% of homeowners have a mortgage below 6% and 82.5% of homeowners have a rate below 5%.
There are always reasons people need to buy and sell real estate, but when you have an interest rate in the 3’s and 4’s, it’s going to take a really big reason to sell. Sellers who don’t have to sell have been waiting for interest rates to come down and they’ve been waiting for more inventory to choose from.
I don’t think we’re going to see a massive surge of sellers in the market of 2024, but I think we will see more buyers enter the market as sellers who need to buy as they begin to feel more comfortable with their options as far as inventory and interest rates.
So, to summarize the demand predictions - demand will go up in 2024. I know, that’s a very definitive and bold statement, but I think it’s a pretty safe one. If interest rates stay where they are and go a little lower we’ll have more buyers, some markets like DFW have developed more pent-up demand than others, and we’re likely going to see more sellers who are buyers in the market than we have in the past.
And the topic of sellers who are buyers provides a perfect segway into my next prediction on the 2024 real estate market and that’s for Inventory. What will inventory look like in 2024?
I mentioned earlier that prospective sellers have been waiting for interest rates to come down and they’ve been waiting for more inventory to choose from. There are two reasons lower interest rates are important to sellers.
First, they know that the lower the interest rate, the larger pool of buyers there will be for their home and the better chance of selling quickly for top dollar. Second, the lower the interest rate, that means the swing from their current interest rate to the new one is likely to be lower and easier to afford. And now a lot of sellers have a good amount of equity to offset the increase in their mortgage payment.
I think we’ll start to see more inventory hit the market in the early spring in numbers much stronger than we did in early spring of 2023. And that’s coming from what I’m seeing with our team in the office. We have a lot of sellers who have said they’ll wait for the market to improve before listing and are eyeing early 2024 as a list date.
But my wild outrageous guess with this part of the predictions is that we will not see much change in the overall days on market or for the overall months of supply. My 2024 bold prediction is that days on market and months supply remain flat. The reason for that is that the increase in inventory will be offset by the increase in demand. We’re going to have movement in the market, but I don’t think the scales get tipped in either direction. No flood of buyers. No flood of sellers.
Just yesterday I received a call from a neighbor who has been on the fence about selling and he made the comment about multiple offers coming back this spring. Well, I had to burst that bubble. Multiple offers will be the exception, and not the rule for 2024. Now no one predicted the multiple offer madness of 2020 and 21, but ruling out any crazy worldwide event, the data isn’t there to support that kind of surge in market demand.
Alright. So we’ve covered Interest rates, demand, and inventory. Now for the 4th prediction for the 2024 real estate market: PRICES!
Yes, everyone wants to know if prices will go up or down for 2024.
According to Fannie Mae’s Home Price Expectations Survey that surveys over 100 housing experts across the industry and academia, the Q4 2023 Panelist Average Annual Home Price Growth Expectations are 2.4% for 2024.
On the other hand, Zillow predicts prices will go down by .2%
NAR predicts a .9% increase in home prices.
Those are the predictions on a national level, but what can we expect in DFW?
If my hypothesis is true… you know, my bold statement about the rise in demand offsetting the rise in inventory so we still have a similar time on market and months of inventory in line with what we currently have, then I think in 2024 we return to the fundamentals of a traditional real estate market where we see a two to four percent rise in prices on an annualized basis. We will see normal housing price swings where they’re lower in Q1, start to rise for the spring, maintain and maybe bump a little in the summer, then come back down for Q4.
If you’re in the market with the goal of finding a steal, the data isn’t there to support that at scale. Of course diamonds in the rough exist and maybe you’ll find that seller who is desperate to get out and will sell at a discount, but you and everyone else is looking for them too.
If you’re a seller waiting for a windfall, you kinda already got it. If you’ve been in your house longer than five years, you’ve already received unprecedented returns. Believe it or not, in November of 2018, the median sales price for a home listed in our MLS was $245,000. The median price five years later for November of 2023 has jumped to $365,000. That is a 49% increase in five years!
So there we go… those are the predictions for the 2024 real estate market.
But wait.
There’s more.
I think it’s important to point out some of the things that could throw a wrench into these predictions.
First… Irrational exuberance.
I think sellers could have some unrealistic optimism about where prices should be come this spring. I’m already seeing this start up with current buyers where I have had multiple occasions where I’ve had buyers who want to make an offer on something but when I run the comps, the sold data doesn’t come anywhere close to supporting the asking price.
Second…. A Black Swan Event.
This is something that is an unpredictable high-impact event.
Covid 19
September 11th attacks
Yoko Ono breaking up the Beatles
All definite black swan events that no one could’ve predicted. But, just because one black swan event happens, doesn’t mean a second isn’t lurking around the corner. And we just don’t have a way to price those into the market.
Third… Political Uncertainty
I don’t know if you’ve noticed, but there is a rather important presidential election coming up in the next 11 months. And the funny thing is, that the two leading candidates, no one seems to like all to much. So the reality is we just don’t know how the markets are going to respond to those results. Now this is a Q4 problem but this could creep in to Q3 and maybe even Q2 if the results are obvious prior to the election.
Okay so there you have it. Those are your 2024 Housing Market Predictions.
By the way, if we haven’t met yet, I’m Jennifer Shannon. I’m a Realtor and Broker Associate with Keller Williams. If you’re new to this channel, be sure to subscribe for more insightful updates about the DFW real estate market. And if you’d like to talk about your options for buying or selling real estate in DFW over the next year, let’s talk.
You can reach out to me by phone or text at 214-803-4444 or by email at JShannon@KW.com.