Housing Market 2024: Zillow Predicts US Home Prices Will Jump 6.5% by Next Summer
Zillow’s forecast of U.S. home prices was revised upward this month with the typical home value predicted to rise 6.5% from July 2023 through July 2024. Tight inventory conditions continue to place upward pressure on prices, according to a Zillow report.
That’s an upward revision from last month’s forecast, which called for 5.5% growth in 2023. Also further confirming the persistent arduous conditions for potential homebuyers, Zillow forecasts 4.2 million existing home sales in 2023, a whopping 17% decline from 2022.
“Housing prices will keep edging up through next summer and most likely beyond that. Inventory is very low, and there’s just not a lot of movement right now,” said Suzanne Miller, CEO, president and founder of Empire State Properties. “Prices can go down but it could take years to reverse course.”
Miller added that a large percentage of buyers have been chased away because of high mortgage rates.
“Nobody is buying and anyone with a low mortgage of 4% or less is not moving to pay double the rate on a smaller home. Prices will come down if interest rates come down. That would create a spike in inventory and growth in new development,” she added. “Right now, unless you are the rare investor who has the means, there is nothing to incentivize a buyer. I think we’ll still be in a sellers market for another two-three years.”
Indeed, for the week ending Aug. 24, the 30-year fixed-rate mortgage reached its highest level since 2001 — at 7.23% — and indications of ongoing economic strength will likely continue to keep upward pressure on rates in the short-term, according to Freddie Mac.
Several experts echoed the above sentiment, saying homeowners feel locked in their mortgages — and until that changes, there won’t be much change in the market.
Another Consequence of High House Prices: An Impact on the Rental Market
Continuing high prices might also have a domino effect on the price of the rental housing market, according to Sipho Simela, CEO and founder of Matrix Rental Solutions.
“As rising home prices, coupled with tight inventory and rising interest rates, deter prospective homebuyers from entering the market, many may find themselves staying on the sidelines and continuing to rely on rental housing for longer than initially anticipated,” said Simela.
As a result, Simela said, a gap in the affordability of home rentals could emerge, affecting individuals and families seeking housing within their budget constraints.
“This scenario underscores the relationship between the housing sales and rental markets, where shifts in one can lead to cascading effects in the other,” added Simela.
What Would it Take for Prices To Drop?
At this point, home prices would have to fall substantially enough to offset the higher monthly payments that have resulted from a doubling of mortgage rates in two years. That’s a tall order outside of a massive recession, said Peter C. Earle, an economist with the American Institute for Economic Research.
“On the other hand, if the Fed were to shift from a contractionary to an expansionary policy mode and lower interest rates, there might be some movement. I think the Fed’s ‘higher for longer’ mantra regarding interest rate policy makes that unlikely, though,” added Earle.
Yet, some experts also noted that even when rates finally drop, tight supply will persist due to a surge in demand.
“I don’t think any drop in interest rates will make housing more affordable for people looking to purchase a home,” Simela added. “This is because supply will most likely get even tighter as more people start looking to buy due to lower interest rates.”
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