If the 2023 real estate market turned out different than you expected, you’re not alone!

Home sales plummeted, mortgage rates soared, and the home price crash that was supposed to happen, didn’t.

So what can we expect in the 2024 real estate market?

In this real estate market update for January 2024, I’ll share the latest predictions regarding home prices, mortgage rates, and total home sales, and also let you know where you can find fixed rate mortgage below 5%.

Watch the following video, or continue reading below, to learn more:

I recently watched some videos on YouTube, from this time last year, talking about what to expect in the 2023 real estate market.

The vast majority predicted the real estate market would crash and burn in 2023. While total home sales did plummet, we usually see 5.5 to 6 million home sales annually and last year there were only 3.8 million, the market did anything but crash and burn.

Home prices, which were forecast to crash by up to 20%, were actually up year-over-year for the majority of the country.

Check Out my Weekly Market Report to see how the real estate market is trending in the city/zip code of most interest to you.

Why Didn’t Home Prices Fall in 2023?

Charts, graphs, data, and predictions are all great, but don’t always tell the whole story. They are all based on assumptions, and sometimes, those assumptions are wrong. Sometimes, common sense and human behavior gets overlooked and lost amongst the charts and graphs.

As mortgage rates rose steeply last year, the assumption that buyer demand would fall was correct, as evidenced by the steep drop in home sales, but the accompanying assumption that supply would continue to increase, and thus cause home prices to fall, was wrong.

Looking back it’s not too surprising though. If you currently own a home with a fixed rate mortgage of 3%, why would you put that home on the market and go and buy a new home with a 7% or 7.5% mortgage rate?

Quite simply, you wouldn’t, unless you absolutely had to sell.

This fact, which became known as the lock-in effect, was missed, and it was a big miss. 78.7% of all outstanding mortgages have a rate below 5%:

As mortgage rates rose, homeowners in one of the categories above simply took their home off the market or decided against listing their home for sale in the first place.

This is more clearly shown on the pie chart below:

The only homeowners that would definitely still sell are those represented by the blue and green slices of the pie; not very many.

Even though demand fell, supply also fell which prevented home prices from falling as expected.

What Goes Up Must Come Down, Right?

When markets get overheated, corrections usually follow whether we’re talking stocks or the housing market, and we all know the housing market was running really hot in late 2021 and the first part of 2022. That is when multiple offers and bidding wars were the norm.

So why didn’t the market correct?

It did. The challenge is that many people were hoping, or expecting, prices to fall back to pre-pandemic levels and stay there, but corrections seldom work that way.

In this case, the majority of markets corrected in the second half of 2022 while everyone was focused on ever increasing mortgage rates. By the end of 2023 most markets had already recovered from those declines are prices were back to where they were before the correction.

This graph from Frisco shows the correction pretty clearly;

Prices in Frisco peaked in April 2022, the high peak in the graph above, at $760,000. The sharp drop you see in the months following is when the Frisco market corrected. By October 2022 the median sales price had fallen to $630,000. a decline of 18%.

While we did see price volatility in 2023, the generally trend was upward once again and by December 2023 the median price was $720,000.

That upward trend is predicted to continue in 2024, but at a more historically normal pace, assuming mortgage rates don’t spike again, which they are not projected to do;

A recent survey by Bright MLS, the largest in the country, of homebuyers that took themselves out of the market in 2023, found that mortgage rates were the biggest factor:

Mortgage rates play a larger role in overall affordability than home prices do (a 1% decline in mortgage rates is roughly equivalent to a 10% reduction n home prices) so it’s not a surprise to see mortgage rates as the primary reason buyers took themselves out of the market.

Relief is On the Way

All indications are that mortgage rates should continue to fall in 2024;

Goldman Sachs is expecting the exact same thing based on the minutes from the latest Federal Reserve policy board meeting;

While the latest inflation numbers, being higher than desired, might mean the Fed delays it’s first 25bp rate cut, the majority of analysts all believe the Fed will cut rates this year which will indirectly help bring mortgage rates down.

The bright spot, and saving grace, in terms of housing supply came from the new home builders. With the lock-in effect keeping many resale homes off the market, new homebuilders were able to fill some of the gap which prevented home prices from increasing further;

The role new construction plays is especially evident here in the Frisco market. Recently released number show that home builders in North Texas had a record year in 2023 with total new homes constructed rising 4% over 2022, which was a record year!

Best Opportunities in Today’s Market

New homes, especially quick-move in homes, currently offer the absolutely best buying opportunities in today’s market with incentives focused on below market financing.

Toll Brothers is just one of the builders offering mortgage rates below 5% on select homesites. Highland Homes have also recently increased their buyer incentive to $20,000 which can be used towards a rate buy down and/or closing costs.

For additional information on all the different incentives currently being offered I invite you to Schedule a Call with me.

If you haven’t done so already, I also invite you to visit my YouTube Channel where I feature new videos each week including home tours of quick-move-in new construction homes.