Erik J. Martin |  Bankrate (TNS)

We may be in the thick of winter, but many homebuyers and sellers are starting to have warm thoughts about the housing market. That’s because, looking ahead, market indicators suggest we’ll see increased activity thanks to lower mortgage rates. Yet home prices remain high and inventory levels are tight in many markets.

How will the first quarter of 2024 shake out when it comes to rates, prices, sales activity and more? We asked top real estate experts to identify upcoming trends and offer their predictions.

What to expect in Q1 2024

The first quarter of the year is often a slower one for real estate due to colder weather and the inclination among buyers and sellers to wait things out until closer to spring.

“We typically see housing inventory remaining low until February and then ramping up from March onward,” says Lawrence Yun, chief economist for the National Association of Realtors. “Homebuying and open house visits also ramp up starting in March.”

Rick Sharga, founder and CEO of CJ Patrick Company, agrees. “Quarter number one is usually something of a reset for the housing market,” he says. “Prices and sales volume decline toward the end of the previous year, and January is often the weakest month in terms of pricing, inventory and sales activity. But things start to pick up in February and March. I expect the first quarter of 2024 to feel like a continuation of 2023, with relatively weak home sales and modest price increases. Still, mortgage rates have recently dropped at the quickest pace in decades, and will probably continue to decline through the first quarter — bringing more prospective buyers back into the market.”

Shri Ganeshram, founder and CEO of real estate investment site Awning, also anticipates an atypical uptick in buyer activity this quarter, which “could lead to a more dynamic market than usual for this period.”

But those lower-rate-motivated buyers will likely continue to face a dearth of supply. One major reason is that the vast majority of mortgage holders have an interest rate that’s 6% or lower, says Kenon Chen, executive vice president of strategy and growth for Clear Capital. That creates a lock-in effect that encourages them to stay put rather than sell and purchase another property. “We may see more homeowners tap into their available equity this quarter to make improvements in place rather than move,” says Chen.

Q1 mortgage rate projections

Prospective purchasers feel a bit more confident lately, with mortgage interest rates backing off 23-year highs at the end of 2023. As of December 20, 2023, Bankrate’s weekly national survey of large lenders puts the average rate for a 30-year mortgage at 6.88.

And rates are generally expected to continue falling, especially since the Federal Reserve recently indicated that rate cuts could be on the way in 2024.

“We’ve turned a corner, with the Fed done raising interest rates, inflation coming down and modest economic growth expected in 2024,” says Greg McBride, CFA, Bankrate’s chief financial analyst. “This has been beneficial to mortgage rates as bond yields have fallen a full percentage point since October and further declines are on the horizon in the new year.”

McBride foresees the 30-year fixed-rate mortgage loan averaging 6.75% this quarter, versus 6.15% for the 15-year fixed-rate mortgage loan. Yun’s prediction is similar: 6.8% for the 30-year home loan, on average. Sharga also expects rates to fall within the 6.5 to 6.75% range in the first quarter.

But not everyone is as optimistic: “I predict a slight increase in mortgage rates, potentially reaching around 7.75% and 6.65%, respectively, for 30-year and 15-year loans based on current economic trends and monetary policies,” Ganeshram says.

Where sales activity and home prices are heading

The good news is that home sales likely bottomed out in 2023 and are due to improve slightly in 2024. “We foresee 5.5 million combined new and existing home sales in 2024, up from 4.8 million in 2023,” says Yun. “Days on the market will remain swift at around 25 from listing to contract signing.”

“We can probably expect to see up to 800,000 sales during the first quarter, with many homes continuing to sell briskly — often going from listing to sale in under 25 days,” Sharga says.

But sales volume increasing doesn’t necessarily translate to home prices declining. In fact, Yun anticipates a 2 to 4% nationwide increase in home prices across the first quarter, due to the persistent housing shortage. Sharga, meanwhile, looks for home affordability to improve — ”hopefully” — with mortgage rates trending down, wage growth running at around 5% annually, and home price appreciation at or below the rate of inflation.

Housing inventory predictions for Q1

The nationwide shortage of housing inventory continues to be an issue for homebuyers. “Mortgage applications have recently increased in response to lower rates, signaling there is still enough demand on the sidelines to continue the supply shortage in 2024,” Chen says.

Sharga echoes those sentiments: “We are unlikely to see the supply of existing homes for sale rise appreciably until mortgage rates come back down in the 5% range,” he says. “Housing starts for single-family residences have ticked up a bit, so we may see a little more new home inventory, but not enough to make up the difference in what we would normally have on the market with existing homes. So supply will remain constrained, giving the advantage to sellers over buyers.”

Others see silver linings ahead: “The worst of the housing shortage is over,” says Yun. “I expect approximately 30% higher inventory and more choices for buyers in 2024.”

Strategies for homebuyers and sellers

Housing experts are encouraged by Fed chairman Jerome Powell’s recent signal that he may cut rates multiple times over the coming year. That could lead to more affordable mortgage loans — buoying the hopes of potential buyers and improving the outlook for would-be sellers, too. After all, lower mortgage rates would make home purchases more affordable, and also motivate more existing homeowners to sell their homes, thereby freeing up more inventory.

“Still, buyers should be prepared for competitive markets over the next few months,” says Ganeshrmam. “I recommend exploring unconventional financing options, if necessary, and being ready to act quickly if a purchase opportunity arises.”

Indeed, if you locate a desirable home you can afford, it might be smart to jump on it. The competition for properties will very likely increase as 2024 goes on and mortgage rates tick down, so there will be more bidding wars for what’s likely to be a very limited number of homes on the market,” Sharga says.

Sellers, on the other hand, need to follow best pricing practices to ensure top dollar for their properties. Make sure you have a good understanding of how much your home is worth in the current market. “Price your home correctly from the beginning,” advises Yun. “Otherwise, it could be seen as stale and may require a 10% price reduction.”

Key takeaways

•Buying and selling activity during the first quarter of the year is usually slow but picks up momentum closer to spring.

•Experts are encouraged by mortgage rates declining recently, which could motivate more house-hunters to begin their search.

•Buyers will continue to face low housing supply challenges and, if rates keep dropping, more competition from rival shoppers.

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