US costumers will start purchasing homes again in 2024, experts say.
The American real estate market is becoming more affordable for the younger generation, although it remains far from 1980s levels, experts say. Mortgages have become slightly cheaper in the past few months, a trend that is likely set to continue in 2024.
Since the end of the pandemic, US mortgages have been on a constant and steep rise, reaching 20-year highs. According to CNBC, 30-year fixed-rate mortgages went from a 2.65% interest in January 2021 to 7.63% in October 2023. Similarly, 15-year fixed-rate mortgages went from a 2.1% low in early 2021 to 6.92% last October.
To put this increase into comparison, mortgage rates have not been this high since the early 2000s, with just a slight increase to 4.57% in 30-year fixed-rate mortgages after the 2008 crisis.
High mortgage prices have deterred new customers from buying homes. First-time home buyers have reached a new low in 2023, with the cost of shelter being the main driver of the post-pandemic inflation.
Luckily for home buyers, mortgage rates have begun steadily dropping since last October. As of December 2023, 30-year fixed-rate mortgages decreased to 6.95%, the lowest level since August.
A trend that, according to experts, will likely continue into 2024.
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Good news for home buyers
The main driver of the decrease in mortgage rates is the end of the Federal Reserve’s hike cycle. The Fed has been steadily increasing interest rates since March 2022 to battle inflation, reaching 5.5% in its October meeting.
In the past two meetings, including the December one, the Fed opted to keep rates unchanged. This week, Fed Chairman Jerome Powell also announced that 2024 will see at least three rate cuts. This decision came after inflationary data showed a better-than-expected outlook in the US, dropping to 3.1% in November.
Although still far from the 2% target, a “higher for longer” strategy should be enough for the Fed to keep inflation under control.
This is all great news for home buyers, who will likely start purchasing homes again in 2024. So far, first-time home buyers preferred renting to buying a home, putting the health of the US real estate market at risk.
The explosion of another real estate market bubble, similar to that of 2008, would have been catastrophic for the US economy, especially during a very contested election year.
Instead, it appears likely that recession will be avoided altogether. If US consumers begin purchasing homes again, soft landing will become a reality.
