As we embark on the journey of a new year, the real estate market remains a hot topic of discussion. The year 2023 was marked by the “mortgage rate lock-in effect,” which brought about significant shifts in the housing landscape. This article will explore what experts predict for the 2024 real estate market, specifically focusing on the Metro Phoenix, Arizona, area and how these forecasts may impact buyers, sellers, and investors.
One pivotal factor that has shaped the real estate market in recent times is mortgage rates. In 2023, we witnessed a rate surge, with October peaking at a high of 7.79%, according to Freddie Mac. However, there is a silver lining on the horizon. Over the past seven weeks, mortgage rates have steadily declined, averaging 6.61% for a 30-year fixed mortgage as of the week ending December 28. This rate decrease is expected to inject new life into the real estate market.
Lawrence Yun, Chief Economist at the National Association of Realtors, is optimistic about the impact of this rate drop on the market. Already, we have seen a positive effect on existing home sales, which grew by 0.8% in November, ending a five-month streak of declines. Although year-over-year sales are down by 7.3%, 2024 could see a reversal of this trend.
While the drop in mortgage rates is encouraging, experts unanimously agree that the housing shortage remains a pressing issue. Danielle Hale, chief economist for Realtor.com, notes that while there will be a slight uptick in single-family home construction in 2024, rectifying the supply shortage gap will take time. Odeta Kushi, deputy chief economist at First American, highlights that over a decade of underbuilding cannot be rectified overnight.
However, there is a glimmer of hope for Metro Phoenix and similar markets. Completing numerous multifamily units, primarily for rental purposes, will alleviate some pressure on the housing market. This additional inventory could help curb the area’s continuous rise in home and rental prices.
Predictions for mortgage rates in 2024 are varied, but they remain a topic of intense debate among experts. Most foresee average 30-year mortgage rates fluctuating between 6.1% and 7% in the first quarter, gradually declining as the year progresses. Chief Economist at Redfin, Daryl Fairweather, anticipates rates of around 6.6% by the end of 2024. This gradual reduction and a slight price dip may offer some relief to prospective homebuyers in Metro Phoenix.
Nonetheless, it is essential to exercise caution. The inherent volatility associated with an election year may lead to fluctuations in mortgage rates. Jeff Taylor, Founder and Managing Director at Mphasis Digital Risk suggests rates could hover in the mid-6% range. Despite the potential relief in rates, homeownership in Metro Phoenix still demands a significant income. At a 7.125% rate and the current median home prices, buyers would require $111,000 for newly constructed homes and $107,000 for existing homes, assuming a 5% down payment. Even with a 1% reduction in rates and a 4% increase in home prices, it would still necessitate $105,000 and $99,000, respectively, to purchase homes with a 5% down payment.
In Metro Phoenix, as in other markets, there is anticipation regarding new home construction. Robert Dietz, the chief economist for the National Association of Home Builders, predicts an increase in single-family housing construction starts in 2024. This upturn comes after declines witnessed in 2022 and 2023. The scarcity of existing inventory has driven an upswing in new construction, with nearly one-third of single-family inventory now comprised of newly built homes. This represents a significant shift from historical levels, where new construction typically accounted for only 10% to 15% of inventory.
In contrast, multifamily construction in Metro Phoenix may experience a decline in 2024. Tight financing conditions and an oversupply of approximately one million apartments under construction, the highest total since 1973, contribute to this trend.
In conclusion, the 2024 real estate market holds promise and challenges for Metro Phoenix. The potential for lower mortgage rates offers hope for prospective homebuyers while the persistent housing shortage continues to shape the market. As we move into the new year, buyers, sellers, and investors in Metro Phoenix must remain informed and adaptable to the evolving real estate market conditions. While there are positive signs, the hurdles of affordability and supply shortages necessitate careful consideration and strategic planning in the coming year.
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(Prices and inventory current as of Nov 30, 1999)
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