Home prices have increased by 44% since March 2020. Add mortgage rates rising from 3% to 8%, and we’ve got what Lance Lambert describes as the “fastest-ever deterioration in housing affordability.”
That said, what can we expect in the coming year, especially if rates do begin to drop (as, historically, they tend to do)?
ECONOMISTS PREDICTING AN INCREASE IN HOME VALUES IN 2024
We looked to the following data sources for their forecasts on home price trends for 2024, as well as expectations for the end of 2023:
The first four are in agreement that home prices will continue to show year over year increases, though with varying growth rates.
According to the last two, however, a single-digit decline in home prices is possible over the next 12 months.
FANNIE MAE
Fannie Mae has updated its housing price forecast with an upward revision for its home price growth projection for 2023. The Fannie Mae Home Price Index (FNM-HPI) now predicts home prices will have grown by 6.7% on a Q4/Q4 basis (2022–2023), up from their previous forecast of 3.9%.
That upgrade is due mainly to higher-than-expected incoming transaction data during the third quarter. Home prices have held up better than expected given higher mortgage rates and record low affordability.
Looking ahead, Fannie Mae economists still expect home price growth in 2024 to decelerate to 2.8% on a Q4/Q4 basis.
Personal consumption has not only remained resilient, but recent official data revisions indicate that the consumer has been in a better position than previously thought, increasingly the likelihood of an economic ‘soft landing. However, despite consumer resiliency, the recent rise in interest rates has been precipitous, and in past environments – even with less severe interest rate shocks – this has led to economic dislocations. As such, we still expect to see a mild economic downturn in the first half of 2024. While the rate of inflation has slowed and continues to slow, we continue to take the Federal Reserve at its word that rates will be ‘higher for longer’ until annual inflation stabilizes at the two-percent target; though at this time, in part because of the recent run-up in long-term rates, we do not expect additional Fed rate hikes.
In many ways, the housing market experienced four years of business in a two-year period between mid-2020 and mid-2022. With ongoing affordability constraints and rising mortgage rates, much of that activity has essentially been given back. We expect the higher mortgage rate environment to continue to dampen housing activity and further complicate housing affordability into 2024. - Doug Duncan - Fannie Mae Senior Vice President and Chief Economist
CORELOGIC
The CoreLogic Home Price Index (HPI) Forecast shows home prices increasing year over year by 3.4% from August 2023 to August 2024—following an annual increase of 3.7% from August 2022 to August 2023.
While continued mortgage rate increases challenge affordability across U.S. housing markets, home price growth is in line with typical seasonal averages, reflecting strong demand bolstered by a healthy labor market, strong wage growth and supporting demographic trends. Still, with a slower buying season ahead and the surging cost of homeownership, additional monthly price gains may taper off. - Selma Hepp - Chief Economist for CoreLogic
