Zillow economists predict easing financial conditions for buyers in 2024. The caveat is that conditions may only improve slightly. With stubborn affordability hurdles, pent-up buyer demand, and inadequate inventory, more favorable financial circ*mstances will likely mean heightened competition.
Read on for a closer look at our major real estate predictions for 2024.
1. Inventory will improve in many markets
Americans have seen big price shocks for nearly everything since the pandemic. A loaf of bread costs a lot more than it used to, as does a home. It takes time to acclimate to that psychologically, but Zillow economists predict that homeowners will begin to get used to the idea in 2024.
“Life happens, right? If I get a job in a new city, I’m going to move. If my family is growing, I’m going to move,” says Zillow Senior Economist Orphe Divounguy. “Life events are one of the major reasons people move in the first place. They don’t wait for rates to move where we want them. And more often than not, people move to markets where homes are relatively more affordable.”
This trend will likely counter the effects of rate lock and strengthen inventory in some regions. The Great Lakes region and the Midwest, specifically, are poised to lead the way in 2024. Top markets in Zillow’s hottest markets of 2024 include places like Buffalo, Cincinnati, Columbus, and Providence. Expect (slightly) more choices for buyers and higher sales volume in most markets.
2. Home buying costs will level off
A typical home buyer in October 2023 would have spent more than 40% of their earnings on their mortgage payment — an all-time high, according to Zillow data, which stretches back to the 1990s. While our economists expect affordability to remain the top concern for home buyers this year, they do believe conditions will somewhat improve in most markets.
Zillow’s latest forecast calls for home values to hold steady in 2024, falling just 0.2% nationally. And while predicting mortgage rates is nearly impossible, recent inflation news suggests they’ll hold steady in the coming months.
Taken together, the cost of buying a home looks on track to level off this year, with the possibility of costs falling if mortgage rates come down. Wage growth has also held strong, meaning the share of income spent on a mortgage will fall even if costs remain the same.
3. In expensive markets, more prospective buyers will opt out
Many will delay buying long term as affordability challenges persist and attractive rentals step in to meet the demand. The average age of first-time home buyers has slowly increased from 29 in 1981 to 33 in 2021, according to the National Multifamily Housing Council, an industry association. Overall, U.S. first-time buyers are getting older, according to a recent University of California, Berkeley study.
Potential buyers are looking for ways to get the amenities they want, whether that’s a private backyard or more privacy. Single-family home rentals can answer that call, and are expected to become the new “starter home” as families rent for longer.
Given the expected demand for single-family homes, some homeowners thinking of selling could become landlords instead, boosting the number of single family homes for rent. New buyers could become landlords, too, as they look for ways to recoup their costs.
4. Buyers want to “house hack”
“House hacking” is using your home to generate income, like renting out a room or adding a detached alternative dwelling unit (DADU) to your property, to offset your housing costs or even make money.
A majority of millennial (55%) and Gen Z (51%) buyers find it highly important to have the opportunity to rent out part of their home for extra income. That’s compared to 39% of all homebuyers, which itself is up eight percentage points in the past two years. After rising steadily throughout the pandemic, YouTube searches for the term “house hacking” hit an all-time high in August of last year.
“Younger homebuyers consider rental income as a key factor in their home-buying decisions,” says Zillow Senior Population Scientist Manny Garcia. “For first-time buyers where a regular 9-to-5 might not quite cut it for homeownership dreams, rental income can step in to help with mortgage qualification and smoothing out those monthly payments.”
5. Buyers will compete with flippers for fixer-uppers
Sweat equity is another way buyers will look to help with their costs this year. Though Zillow predicts more homes will hit the market in 2024, inventory this year will still remain lower than pre-pandemic norms. Faced with limited choices, buyers will be willing to overlook small flaws, such as an outdated bathroom or kitchen.
Total cost of ownership today, fueled largely by higher rates, makes a flip harder to pencil out, so starter-level home shoppers may face less competition from flippers than in previous years. Still, pent-up demand means fixer-uppers won’t come cheap.
6. Downtown-area rentals will see a demand rebound
Suburban rent growth was still outpacing urban rents in 33 of the 50 largest U.S. metros in the final quarter of 2023. But the gap is narrowing, especially in areas with easy access to downtown office hubs. Workers returning to offices and people seeking out post-pandemic amenities are likely driving factors.
Rental demand in New York City is surging in areas with easy access to Downtown or Midtown Manhattan, while areas farther from these neighborhoods are seeing relatively less demand, according to data from StreetEasy.
Zillow economists predict other urban markets will follow suit. The good news for renters: A multifamily construction boom in 2023 brought a huge number of new rentals to the market, giving renters more options and increasing the likelihood that landlords will offer concessions to attract and keep them. Given pent-up buyer demand for lower-price tier homes, this is unlikely to affect for-sale activity in most markets.
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