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Will the Housing Market Crash In 2024?

The housing market is primarily influenced by the dynamics of supply and demand, interest rates and government policies. In recent days, there have been rising concerns that the housing market in the United States could be staring at a potential crash. Although sales of newly constructed homes have been rising, the market for existing homes, which makes up the majority of the housing stock, has remained flat. The current market data shows a mixed bag when it comes to forecasts and trends on the trajectory of home prices.  All the speculation aside, here are the key factors that you might want to keep your eye on:

What will influence housing prices in 2024?

In April, a judge issued a potentially disruptive ruling on real estate broker commissions settlement involving the National Association of Realtors (NAR) . The settlement, which will preliminarily come into force from August 17, stipulates that NAR must implement new regulations prohibiting broker compensation offers on MLS. As a result, sellers will not be able to pay brokers through the MLS anymore. Nevertheless, the regulations do not outlaw negotiations that take place outside of the MLS. It is likely that many buyers who would not be able to afford a broker’s fees will opt to go it alone if sellers don’t provide any.

One thing for sure is that high interest rates have kept house prices high in recent times. March saw a median home price of $393,500. Meanwhile, Pending Home Sales grew 3.4% in March 2024, while existing Home Sales declined by 4.3% year-over-year across the United States. In addition, the number of new home starts went down in two of the first four months of the year, ensuring that the market is not really tilted toward buyers or sellers.

Nevertheless, the Federal Reserve’s strategy in combating inflation will have a role in determining the extent to which mortgage rates will decline in 2024. Currently, the Fed seems content keeping interest rates high at 5.25-5.50%, as inflation remains stubbornly above the target level of 2%. As we head into the second half of the year, it is increasingly becoming unlikely that the Fed will announce more than one rate cut this year.

So, will we see a crash in 2024?

In 2024, the housing inventory is a major factor that will likely prevent a crash in the housing market. However, the housing market data has been generally stable since the year began. Key housing market indicators such as New Home Sales, Building Permits and Housing Starts have generally been pointing toward an emerging imbalance between demand and supply. Excessive demand and euphoria can cause speculative bubbles, which could lead to a collapse in the housing market.

What awaits the housing market in 2025?

In 2025, the Federal Reserve will most likely reduce interest rates. Borrowers will benefit from lower mortgage rates since they are more affordable, but demand will also rise as a result. If interest rates drop sharply, it will likely lead to an increase in demand that cancels out inventory increases, which could push house prices back up.