“Will home prices drop in 2024?” is a question homebuyers and sellers are often asking my team and I, so today I’m going to take just a few minutes to address this question. Prices have been steadily rising for several years now, and those that are considering buying a home are wondering if they should just wait for them to fall.

I DO NOT have a crystal ball, but today I’ll provide some insight to determine IF home prices will drop in 2024 and then, towards the end, I’ll be sharing how to overcome high interest rates and protect the financial wealth of homeownership.

First, from a historical perspective, the housing market pulls back every 10 to 15 years. The Great Recession, which was the last housing market crash, started near the end of 2007 and officially ended in June 2009, although its effects were felt for several years afterwards. If 2008 is our “ground zero”, then we’re overdue for a recession, suggesting that home prices will drop soon, even in 2024.

However, it’s important to note that the free market doesn’t care about our calendars. Many factors fuel rising home prices. One of the greatest factors in recent years that impact home prices is interest rates. When the market was hot as fire, let’s say in April of 2022, interest rates were around 3%, so the cost to borrow the money for that home was cheap and almost everyone that could buy, bought.

This buying frenzy, because of these low interest rates and increased demand, drove home prices up like a rocket. The principal and interest portion of a monthly mortgage payment at 3.25% for 30 years in April 2022 was just over $1,523, whereas the same payment today, say at 6.75% is just over $2,270. That’s $750 MORE each and every month for 30 years. The most likely way for homes to be less expensive for home buyers is if interest rates fall.

But WILL interest rates fall? Well, as of today, most believe that The Fed will be lowering rates in September, maybe November, 2024 at the outside. If interest rates DO fall, then home prices WILL drop. Right?

Well, not so fast. If interest rates fall, and everyone that’s been waiting for this to happen opts to buy a home, then demand could be squeezed, and home prices could actually RISE. I know, sometimes this stuff makes my head hurt. Right now, we’re dealing with what they call the Lock-in Effect. Everyone that has those ultra-low interest rates from before doesn’t just want to give them up. They don’t want, or cannot afford, to have their payments rise by that $750 I spoke of earlier.

So, let’s suppose the Fed drops interest rates by half percent, and everyone that’s been sitting on the fence opts to sell, we could see an increase in supply, which could cause home prices to drop in 2024.

Next, let’s address other factors, like the conflict in the Middle East, Ukraine, and China. This is the big news these days on all the media outlets. Historically, war has had little DIRECT impact on the real estate market itself. Yes, most Americans will be flippin’ out if that were to happen, but we’ll still be buying and selling homes because we’ll still need to.

If you need to buy or sell anywhere at all, just pick up the phone and give us a call. I’m a local Realtor® here in Florida, but I’ve got connections with some great Realtors across the country and beyond.

Now I’m not saying that there won’t be an indirect impact on home prices though. A war could cause energy, supply chain, construction costs, and who knows what else to rise. But the inverse could also be true. Homeowners often buy and sell based on emotion and those willing to buy when others are fearful could reap huge rewards.

Yes, a war could cause home prices to rise, but it could also cause home prices to drop in 2024 or beyond. In general, when wars are nearing their end, economies tend to flourish and confidence rebounds, but if a war were to break out soon then I doubt we’d see home prices drop in 2024 as it could take several years for it to end.

Did I answer your question here? Well, I said before that I didn’t have a crystal ball and that remains. Nobody has the “silver bullet” answer to whether or not home prices will fall in 2024, but you CAN still avoid financial devastation by NOT buying because of perceived high interest rates.

Most of us know that timing the stock market is a bad way to make a living. Most of us just don’t have the knowledge to make money consistently when trying to time the market. However, it’s widely known that just getting in the market and taking gains over the years is the way to attain massive financial wealth, and the same is true for real estate.

Historically, home values have increased an average of around 4% annually. So sometimes even buying an overpriced home, like so many did back in early 2007, can help people amass great home equity over the years. Those that bought in 2007 look like geniuses today, but they looked like fools in 2008. The difference here is the TIME. Home buyers should be looking to buy and hold, not treating their home like some stock on the NYSE.

Look, there’s no guarantee whatsoever that home prices will EVER retreat to the good ole’ days, whenever that was. I helped someone sell their home last month for over $400,000 that bought their home in the 80’s for like $100,000. Time IS your friend when it comes to obtaining wealth. If you buy when interest rates are perceived to be high, let’s say at 7% (which actually BELOW the historical average), refinancing when rates DO come down can really help with affordability, which seems to be everyone’s concern these days.

 

 

Published on October 08. 2024 / no comments.