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2024 Housing Market Outlook: Showing Signs of Strength

February 13, 2024  //  BY First American Data & Analytics

First American Data & Analytics recently presented its 2024 Housing Market Outlook webinar, featuring Odeta Kushi, Deputy Chief Economist of First American Financial Corporation, for a look at the overall financial health of the U.S. economy and, specifically, the housing sector. Here are some key takeaways from the event.

Powell’s Pivot: End of the Monetary Tightening Cycle and a Soft Landing

In a recent Wall Street Journal survey conducted among economists, a majority of them believed that the economy would avoid recession in 2024. Whether considering the Consumer Price Index (CPI) measure, or the Fed’s preferred measure, the Personal Consumption Expenditure (PCE), the trend is clear: inflation is approaching the Fed's 2% inflation target even though it’s not there yet. Therefore, it’s possible that the Federal Reserve will be able to architect a “soft landing”- cooling inflation without tipping the economy into recession in 2024.

Other macro-trends to watch in 2024 include:

  • In the services sector, inflation has come down from recent peaks, but the shelter component, while also seeing signs of relief, is still elevated.
  • According to an analysis of real-time rents, shelter inflation is poised to continue to decelerate into 2024. Throughout this year, rent deceleration and, in some cases, rent declines will increasingly drag down overall inflation.
  • The Fed has left rates unchanged and their December projections imply that they may cut interest rates this year as many as three times. Interestingly, the markets and investors are more optimistic than the Fed and suggest we'll see even more rate cuts.
  • While the excess savings cushion that was built up during the pandemic is deflating, it’s still expected to sustain strong consumer spending through the first half of the year, which will propel GDP growth.


Generational Trends Shaping Demand

In terms of demand, data shows that millennials are playing catch-up in homeownership. Millennials are delaying homeownership as well as marriage and family formation, which of course are motivators for, and highly correlated with, wanting to own a home. For 30-year-old millennials, there's about a 6-percentage point difference in the homeownership rate compared with their generational predecessors, Generation X, at the same age.

Part of the delay in home buying is because millennials have prioritized education and, despite the slower path to homeownership, that education is translating into higher earning power. As of 2022, over half of millennial households were homeowners, which still leaves many more young households who will want to make that same transition into homeownership. With the population of 30- to 39-year-olds continuing to increase through at least 2030, the demographics for homebuying, particularly first-time homebuyers, remain quite favorable in the coming years.

So, how will baby boomers affect the housing market? Just as millennials are delaying the transition to homeownership, baby boomers are delaying the traditional path out of homeownership. The number of people 80 years or older is expected to more than double between 2022 and 2040, and as they do, these seniors will begin to downsize and sell their homes, putting more supply on the market. But this supply—a welcome relief to limited housing inventory—will require much-needed repairs and upgrades.

Supply Will Take Time to Recover

According to a First American analysis of single-family homes owned by a head of household over 60 years old, nearly 1 million of those homes are considered inadequate for habitation. Another 32 million are technically adequate but even those homes are likely in need of updating and remodeling. Roughly 34% of this “adequate” inventory is in the top 25 U.S. metropolitan areas. Given that so much of this emerging inventory is in highly sought-after locations, there will likely be enough buyers willing to spend the money needed for updating and remodeling. Somewhat by default, the fixer-uppers will be popular again. As baby boomers age out of homeownership, the supply will help narrow the housing shortage over the next decade, even leading to a surplus in some parts of country.

In the short term, the rate lock-in effect will continue to exacerbate the housing shortage. Currently, millions of homeowners are locked in by attractive interest rates they don’t want to part with. In fact, 90% of mortgaged homes have a rate below 6%, and 80% are locked into rates below 5%.

But there are signs that this situation is gradually improving. January saw a 10% month-over-month increase in mortgage applications, and most economists expect continued acceleration with existing home sales, including alleviation with the rate lock-in effect as interest rates come down. It’s also important to remember that 42% of owned homes are free and clear without a mortgage. These free-and-clear homeowners are not disincentivized from selling their homes due to the rate lock-in effect. Additionally, record home equity will help offset higher mortgage rates for those who want to make a move.

Building new homes to address the shortage has been met with its own supply-side and financing headwinds. While December and January’s home builder sentiment increased, it’s still not in positive territory. However, declines in mortgage rates during 2024 and a continuation of limited supply of existing homes for sale should spur more single-family home construction this year. More good news on the new construction front: median sale prices on new homes have come down in recent periods, and is the share of new homes sold of the under-$300,000 price point has increased, which is attractive to first-time buyers.

Positive Expectations for 2024

While home prices will most likely remain elevated, affordability is expected to improve this year. Home prices reached a new peak for the eighth consecutive month as of November 2023, according to the First American Data & Analytics Home Price Index. When analyzing by price tier, starter home prices grew the fastest in many markets due in part to the demand from first-time millennial buyers. Assuming mortgage rates end the year in the 6% range (as many economists expect), income grows at the historical average rate, and nominal house prices increase at about 3.8%, affordability is expected to be 8% better at the end of 2024 than it was at the end of 2023. Still, that’s about 35% worse than in 2022 before the Fed began increasing rates.

Also, on the good news front, foreclosures remain below the pre-pandemic level. Foreclosure is usually the result of two consequences: an economic hardship and a lack of equity. In today's market, not only do the majority of homeowners have significant equity, but the unemployment rate remains quite low and the labor market continues to be strong, so there isn’t a wave of foreclosures coming. Home equity totaled about $32.6 trillion in Q3 of last year, a historic high. Likewise, the “national LTV” remains historically low at 28%,.This significant equity and low LTV provide a cushion to withstand potential price declines but also prevent distress from turning into a foreclosure.


To learn about these highlights in more detail, you can watch the webinar and download the full presentation by clicking on the button below.

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