If you’re trying to buy a home in 2024, get ready for a complex housing market, shaped by high prices, rising mortgage rates and the everpresent forces of supply and demand.
With around 20 years of experience as a real estate professional, I’ve had the privilege of guiding many first-time buyers on their journey to homeownership. One key insight I’ve gained over two decades is that while homeownership can sometimes feel out of reach, the right timing and preparation can make anything possible.
Below, I’ll try to demystify the current state of the housing market, offering insights and strategies to navigate these turbulent waters.
What to know about home prices and housing supply
At the heart of the housing market are the twin pillars of supply and demand. Over the years, we’ve seen how these forces dictate market conditions, influencing everything from pricing to the pace of sales for buyers and sellers alike. The period leading up to 2024 has been no exception.
During the pandemic, ultralow mortgage interest rates led to a surge in buyer demand. But higher demand collided with a dwindling supply of available homes for sale. The imbalance has led to a competitive market. Multiple offers and bidding wars have become the norm, rather than the exception.
Elevated prices are largely driven by limited inventory, a situation that doesn’t seem likely to change anytime soon. But the housing market should see some relative stability in the near term, with a modest appreciation in home prices by 3% to 5%.
A significant factor contributing to low supply is the number of homeowners who are effectively “locked” into their current properties because they bought their homes with historically low mortgage rates. Those homeowners are disincentivized from selling because any new property they bought would likely come with a higher price and a much higher mortgage rate.
It’s also important to understand that most sellers are simultaneously buyers. When someone sells a home, they usually buy another, meaning there isn’t a net increase in supply. The only time there’s a net increase is when new buyers enter the market without selling a property -- a rare scenario except in cases of foreclosure, death or divorce. This dynamic ensures that, for the foreseeable future, the housing market will remain the same, with a slight upward trend in prices.
What to know about high mortgage rates
Currently, mortgage rates are the hot topic in the homebuying process, primarily due to their rapid increase over the last few years, and their significant impact in making monthly payments less affordable. The surge in mortgage interest rates can be attributed to economic volatility, and factors like inflation and fluctuations in the job market aren’t likely to go away anytime soon.
Because of today’s high home loan rates, many buyers are contemplating whether it makes sense to pay points (also known as buying mortgage discount points) to lower their mortgage rates. My perspective is that it could be beneficial if it’s necessary to qualify for a loan. But because buying down the mortgage rate represents a sunk cost, I generally advise against it.
If you’re in the market for a home, focus on what you can control rather than attempting to time the market perfectly. Consider whether your monthly mortgage payments are manageable, if you have sufficient savings and if you’re looking at homeownership with a long-term perspective.
Remember, there’s a good chance that refinancing opportunities could arise in the future, offering lower rates and better terms.
My top strategies for homebuyers in 2024
Preparation and strategy are key if you’re determined to buy a home this year. Here are some steps to improve your chances:
1. Find a trusted real estate professional
Partnering with an experienced agent can provide invaluable insights and guidance. Look for a professional with a deep understanding of the market trends as well as local nuances. Early and open communication with your real estate agent about your preferences, budget and requirements can help them identify suitable properties more effectively, potentially giving you early access to listings.
2. Get mortgage preapproval
In a competitive market, being preapproved for a mortgage can give you a crucial edge. Though you can start househunting getting preapproved first, a mortgage preapproval demonstrates your seriousness and financial readiness to sellers, making your offer more appealing.
3. Improve your financial situation
Use the time leading up to your purchase to work on enhancing your credit score and saving for a down payment. A higher credit score can qualify you for better mortgage rates, reducing the overall cost of your loan and potentially allowing you to purchase a bigger home.
A larger down payment can lower your monthly mortgage payments and may eliminate the need for private mortgage insurance, saving you money in the long run. Start by reviewing your credit report for any errors, paying down existing debt and setting aside savings specifically for your home purchase.
4. Explore additional financing options
The 30-year fixed mortgage has traditionally been the preferred choice for most homebuyers. However, you might consider alternative options, such as adjustable-rate mortgages, which often come with lower initial mortgage rates and reduced monthly payments. This might enable you to qualify for a more expensive home than with a traditional fixed-rate mortgage.
Exploring nontraditional mortgage options can offer financial flexibility and potential savings in the early years of homeownership.
5. Stay flexible
Due to the scarcity of homes on the market, finding the perfect home that meets all your criteria can be difficult. That’s why being flexible about your “must-haves” could offer an advantage over others who are less willing to compromise. However, it’s crucial to distinguish between what you’re willing to be flexible on and your nonnegotiables. Maintaining firm boundaries on your actual requirements and needs ensures that you don’t just settle for any home.
6. Be ready to act
The housing market rewards those who are fully prepared ahead of time, especially those with preapproval in hand. In competitive markets, be ready to act swiftly when the right home appears and be poised to make an offer, with all preparations completed in advance. Waiting to complete the preapproval paperwork after finding the ideal home often leads to disappointment. Do what you can to be in a stronger position to succeed in a fast-moving market.
How to deal with low housing inventory
To understand the current real estate market, let’s take a look at the historical ebb and flow of housing inventory. Traditionally, inventory levels have followed a seasonal pattern, with increases in the spring and summer months, followed by declines in the fall and winter. The optimal times for selling and buying are influenced by various factors, including weather conditions, school schedules and the broader economic climate.
However, the pandemic disrupted these patterns. The lockdown led to a dramatic reduction in inventory as homeowners hesitated to list their properties. It also led to a shift in preferences, with potential buyers seeking more space and comfort in their living situations. This period of upheaval left a lasting imprint on the market, contributing to the low inventory buyers face today.
Housing scarcity is particularly pronounced in more affordable markets (where homes are listed below the nationwide median price). Buyers in lower income brackets have to be strategic and persistent to secure a home that’s within their budget.
But there’s a glimmer of hope as we inch closer to the spring homebuying season. The likelihood of lower mortgage rates brings the potential for more properties to hit the market, as homeowners respond to life changes like divorces, downsizing or the desire for a new environment. Yet, even if more houses become available, the competition for affordable homes is likely to remain fierce.
How to know the right time to buy
Deciding whether to buy a home now or wait is a deeply personal decision, based not only on market conditions but on your circumstances, budget and long-term goals. While the current market poses challenges because of a lack of affordability, it might not be beneficial to wait. The upward trend in home prices suggests that delaying a purchase could make it even more expensive to own a home down the line.
By adopting a strategic approach, engaging with knowledgeable professionals and preparing financially, you can improve your chances of finding and securing a home that meets your needs and preferences.
The journey may be challenging, but the reward of homeownership is worth it. If anything, the complexities of the 2024 housing market are easier to navigate if you stay informed, ready and resilient.
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