3 ways home prices could fall in 2024
If you're looking for a new home right now – or if you're the type of person who likes to look through Zillow listings even though you aren't in the market for a house – you've probably gotten used to the sticker shock you feel when you see how expensive homes have gotten recently. In September 2023, the average home price was $411,868, according to data from Redfin. That's a jump of 2% year-over-year.
A recent report from Goldman Sachs expects that the total annual jump in home prices will be 4.2% in 2023 – and forecasts a more modest but still notable jump of 1.3% in 2024. These are just forecasts, though, and if economic indicators break the right way home prices could actually end up going down.
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3 ways home prices could fall in 2024
As noted above, some experts are expecting home prices to go up again in 2024 – not by as much as this year, but a notable bump nonetheless. That said, this is only a prediction, and it is entirely possible that by the end of the year prices will have come down a bit. Here are three things that could happen that would lead to falling home prices
Another spike in mortgage rates
The tough market for buyers has been made worse by the fact that mortgage rates are very high right now, with the average interest rate for a 30-year fixed-rate mortgage sitting at more than 8% as of October 27. If the Federal Reserve raises the benchmark rate again next year, that would likely lead to a jump in mortgage rates as well – which could lead to lower housing prices.
While a few rate cuts are expected in 2024, that could very well change – especially if inflation heats up again. The Federal Reserve began to raise interest rates in 2022 as a response to growing inflation. In September 2023 the inflation rate was 3.7% – better than it was at the worst of the inflationary period but still a ways off from the goal of 2%. If inflation were to get worse rather than better, a rate hike wouldn't be shocking.
While mortgage rates and housing prices aren't always directly correlated, higher mortgage rates often lead to fewer people looking to buy homes. Basic economic principles dictate that lowering demand will lead to lower prices, so a mortgage rate jump could actually be a blessing in disguise for some homeowners.
A recession could settle in
It's important to remember that the word "recession" doesn't simply mean that the economy feels bad – it's a technical term with an exact definition: a period in which the GDP of a country falls for two consecutive quarters.
While some people may not feel economically secure right now, we're not in a recession at the moment. That doesn't mean one won't come soon. If a recession does happen, that would likely leave many Americans out of position to buy a home. Again, fewer potential buyers means less demand, which would likely result in lower prices for those who can still afford to buy a home.
The bubble could burst
All markets are cyclical. Nothing goes up or down forever, and eventually there is a change. Think back to 2008 – before events leading up the the credit crisis, home prices were sky high. Eventually, the bubble burst and prices went down quickly.
To be clear, there is no evidence that the housing bubble is close to bursting. Major shifts aren't always predictable, though, so a major shift could absolutely come in 2024 – but maybe don't make plans around it.
The bottom line
The housing market is currently very favorable for sellers – prices are high and demand is far outpacing supply. While predictions for 2024 favor another small jump in home prices, that's just a prediction. If certain things happen, like another jump in mortgage rates or an economic recession, prices could absolutely end up going down next year.
