Zillow Chief Economist’s 2024 Real Estate Market Recommendations
2024-01-03 Recommended by Evelyn Yang
2023 was a challenging year for homebuyers. Mortgage rates rose to a 23-year high, while tight inventory meant home prices continued to rise across most of the country, making it difficult for every buyer to find a home that met their needs.
I hope 2024 will be a year to catch our breath, beginning the real estate market’s long healing process. In fact, the Zillow Research team predicted exactly that in our annual forecast.
Here are some of the items on my wish list that would help make this happen:
More Homeowners Decide to Sell
The severe inventory shortage in 2023 caused home prices to continue rising, particularly disappointing first-time homebuyers hoping to make progress during an economic slowdown. “Rate lock-in”—homeowners who locked in long-term mortgages when rates were near 3% and are reluctant to sell and accept new mortgages at much higher rates—is an important reason.
We have seen early signs that rate lock-in is easing. The new-listing deficit is narrowing compared with the pre-pandemic norm. Importantly, this trend continues to make the market more balanced.
Build, Build, Build
Another way to bring more homes to market is through new construction. In the long run, increasing the housing stock through new construction is even more important than increasing existing homeowners’ inventory because of housing shortages.
Recent readings provide reason for optimism. I hope this momentum continues into 2024.
Mortgage Rates Remain Under Control
The rise in mortgage rates in 2022 and 2023 may be the biggest reason the real estate market fell into neutral. The recent decline in mortgage rates has prompted more activity.
Rates are unlikely to fall to around 3%, as we saw in 2020 and 2021, at least not without another economic crisis—something we neither want nor should hope for. After the sustained increases and unpredictability of the past two years, a continued gradual decline in 2024—or even rates remaining more stable—would be a welcome breakthrough. Households need an opportunity to plan their finances.
Rent Growth Remains Steady
U.S. rents are growing steadily at just over 3% year over year, slightly below the long-term average. The sharp fluctuations in rent growth during the pandemic made it difficult for renters to find stability and budget for their futures, while higher costs made it harder for renters to save for a down payment—today, the median household needs four years longer to save a 10% down payment for a typical U.S. home.
Rent growth is also a major factor in inflation. This more balanced, sustainable path for rent growth can not only help renters save for a down payment or another life milestone, but also strengthen the case for the Federal Reserve to ease monetary policy and cut interest rates.
A Strong and Sustainable Job Market
The job market has remained strong amid the economic turbulence of the past two years. Real wages, which declined in 2022 as inflation surged, grew in 2023. Although job growth slowed, it did not turn negative, and the unemployment rate remained below 4%.
To improve housing affordability and household finances, it is important for the job market to remain moderately strong so that the often-mentioned “soft landing” can be achieved.
More Ways for First-Time Homebuyers to Build Credit
For years, Zillow research has demonstrated the importance of access to credit and credit scores in the homebuying process. Improving access to credit and making it easier to demonstrate creditworthiness would enable more households to own homes. We cannot control the macroeconomy, but we can build a better market.
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