The Housing Market Could Get Ugly or Surge—These Investors Say It’s Somewhere in Between

What will the housing market look like for real estate investors in 2024? Will the much-predicted recession finally hit the U.S. economy? Will interest rates come tumbling down as a result, bringing house prices down with them? 

A panel of real estate experts addressed all the major issues surrounding the real estate market in a recent episode of our On The Market podcast. Here’s what they had to say. 

But First: A Word of Caution About Forecasts

On The Market podcast host, Dave Meyer, points out that predictions can often be wrong. In fact, Zillow got their predictions for 2023 badly wrong, particularly about housing affordability. 

Affordability, Dave reminds everyone, is at its lowest point since 1985. This is important to consider for anyone making any kind of real estate forecast for 2024. When we’re talking about home prices and affordability, we must factor in the unprecedented housing market boom during the pandemic, which has left a lasting effect. 

The median national home price in the U.S. is $431,000 as of the third quarter of 2023, a whopping 31% higher than in early 2020 before the pandemic hit. It will take a lot more than modest home price fluctuations to impact the housing market in a substantial way. 

Apart from home prices, they also discussed the other major issue currently affecting the housing market that will continue to do so into 2024 and beyond: skyrocketing interest rates. Mortgage rates hit a 20-year high back in October, exceeding 8%. What everyone wants to know, buyers and investors alike is whether rates will finally begin to come down in the new year. 

High home prices and mortgage rates, coupled with a slow economy over a long period of time, would be bad news for the real estate market, but there’s a lot of speculation right now around possible relief beginning in the spring of 2024. 

Dave Meyer’s Predictions

Dave offers a balanced prediction that sees 2024 as a year of split fortunes. He thinks that the first half of the year will be ‘‘really bad’’ in terms of affordability since interest rates will take a while to come down. 

Once they do, however, the housing market should rebound, seeing a possible growth rate of 1% to 2%. Dave emphasizes modesty in his forecast: It is unlikely that rates will come down a lot, only ‘‘a little bit’’ toward the summer, and therefore, the market will stay mostly flat throughout 2024.  

Dave’s view of the broader economic situation is likewise moderate, though leaning more toward a pessimistic prognosis. He feels like he’s done a flip on his own feelings about the economy, saying that, until recently, he was confident in the economy despite the inflationary pressures. 

Now, though, just as everybody else seems to be feeling better about the economy, Dave is ‘‘starting to feel worse’’ about it. He is unconvinced by the current high GDP because there are ‘‘ a lot of headwinds,’’ including the unresolved issue of student debt, a slowing job market, and ongoing uncertainty around the global geopolitical situation. 

Global events may not impact the economy directly, but they ‘‘impact consumer sentiment,’’ which can have a knock-on effect. So whether the U.S. enters a technical recession or not, the economy is likely to slow down.  

An economic slowdown always causes interest rates to go down, and Dave does believe they’ll come down in 2024—just not that much. His forecast is a 7.1% rate, which is just a little lower than 2023’s rate. 

Investors take note: Dave’s prediction for the best market in 2024 is the Midwest, and it’s easy to see why. It’s one of the most affordable housing markets in the country, and parts of the region are seeing steady population growth. He recommends focusing on growing areas, as, of course, not everywhere in the Midwest is a good location for real estate investing. 

James Dainard’s Predictions

James Dainard thinks that home prices will see a small decline of around 2% next year. He ties this prediction to wider issues with the economy and people’s financial capabilities. 

America is ‘‘slowly eroding affordability,” he says. With so many other growing loan commitments, including credit card debt and car loan repayments, people will be prioritizing those, ‘‘and it’s just going to make people focus on buying cheaper properties.’’ 

James’s view of the broader economy can be summarized with the phrase ‘‘a small recession.’’ Nothing drastic, but James forecasts further government action to try and ‘‘balance out’’ growing housing unaffordability. The Fed is likely to try ‘‘to slow this beast of an economy down’’ throughout the year. 

Having said that, James admits that he doesn’t see interest rates as a decisive factor in the housing market and thinks they’ll stay around the current 7% mark for all of 2024. 

James declines to name a single market as ‘’the’’ best market for investors in 2024, arguing that people will focus on affordable single-family homes and rentals wherever they are in order to combat their growing debt and generally get their finances on track. So any investor’s prime focus should be ‘‘affordable rental units with lower rents because [of] where the demand is right now. People need to save money.’’ 

James’s valuable advice to investors is to look away from luxury housing and toward single-family fix-and-flip projects that are affordable for buyers, adding: ‘‘Don’t go custom, don’t go high end. Stick with the masses, and make sure that you can market to the most amount of [the] buyer pool.’’ 

Henry Washington’s Predictions

Henry Washington, like Dave Meyer, advises caution when making predictions about the first half of 2024. Like Dave, he uses the word ‘‘ugly’’ to describe the state of the real estate market during that time. 

However, he reminds the other experts and the audience that there’s an election coming up, and whatever the outcome is, it could interfere with the economy. Whichever party comes to power is likely to want to make changes to stimulate the economy, which could change the trajectory of the housing market in some way.

Having said that, Henry stresses the importance of the ongoing supply-demand gap. This is probably the biggest factor keeping the housing market buoyant. Prospective homeowners still want to buy, even with high rates and an uncertain economy. So, as soon as rates begin coming down in the second half of 2024, people will start buying, which will push up home prices a further 3% by the year’s end. 

Moreover, Henry believes that even if rates stay flat for all of 2024, people will simply get used to that and buy homes anyway. Smaller regional markets may see even higher home price growth than the national average. 

On the issue of the broader economic outlook, Henry thinks that a technical recession is highly likely in 2024, but oddly, it will be coupled with ongoing high consumer spending. Social media behavior showcases the current mood: Everyone is complaining about the rising prices of everything from homes to groceries, but also ‘‘people are still spending like crazy, and I don’t know how.’’ 

The high spending is undoubtedly a major contributing factor to growing credit card debt, even if this isn’t a new problem. From travel to home goods, Americans aren’t ready to cut down on their lifestyle spending. 

For all these reasons, Henry doesn’t believe that interest rates will come down a lot. In fact, a drastic decline in mortgage rates would signal there’s something badly wrong with the economy, so it’s not a desired outcome. Henry’s predicted interest rate by the end of 2024 is 6.75%.  

Giving investors advice on the best markets for 2024, Henry zooms in on what he calls the ‘‘unsexy big cities,’’ such as Cleveland and Columbus, Ohio, and Indianapolis. These cities are slightly more affordable than the traditional urban destinations (e.g., NYC and L.A.), but they offer movers robust job markets and healthy housing supply levels. 

In other words, people can still buy a house in these cities and get a good job there, which makes for a healthy housing market.

Kathy Fettke’s Predictions

Kathy Fettke’s prediction for home prices aligns with Henry Washington’s: She is forecasting an increase in home prices. The rationale here is that mortgage rates will come down next year, which will lead to a ‘’buying frenzy.’’ 

Kathy’s forecast is that home prices will go up by as much as 4% due to high demand. This prediction is in line with what’s been happening to the housing market for the past three years: continued growth despite predictions of a slowdown. 

The housing market has a long way to go before it recovers from the severe inventory shortage that began in 2020. There simply aren’t enough homes available for sale, while demand for homes remains high. 

Kathy has a lot of faith in the economy, which is showing remarkable resilience despite the recent negative factors. She reminds us that the current GDP is a very healthy 4.9%, which is a ‘’really, really strong economic output’’ that’s translating into a very buoyant labor market. 

There are jobs, and wages are still growing, which is why people continue to spend money. Far from signaling an economy that’s spinning out of control, this high consumer spending is actually signaling well-earned confidence, according to Kathy.  

Nevertheless, the U.S. is likely to enter a technical recession midway through 2024, which will have an impact on interest rates. That’s partly because a recession makes investors buy bonds, ‘‘and that lowers rates.’’ Kathy’s prediction is that interest rates will go down to 6.5%, in line with Fannie Mae senior vice president and chief economist Doug Duncan’s forecast.  

Kathy’s predictions for the best markets of 2024 include the Southeast and Southwest. These are still ‘’somewhat affordable,’’ with many people moving there, so she recommends these to investors and confirms that she will be investing in those regions herself. 

Final Thoughts

Our experts are in consensus on one thing: Any significant shifts in the housing market and the broader economy will happen in the second half of 2024. Investors hesitant to make decisions in the face of what will look like a bleak market should consider the likely changes to interest rates and buyer confidence in the second and third quarters of 2024. The looming recession is likely to be mild and highly unlikely to impact the real estate market. 

However, where our hosts somewhat diverge is what buyers and renters will be looking for. Will they focus on saving money and go for cheaper housing, as predicted by James Dainard? Or will they continue riding the wave of confidence offered by a resilient economy, as suggested by Kathy Fettke?

Depending on which forecast aligns with your own instincts as an investor, you may choose to invest in either affordable, quick fix-and-flip projects in your area. Or perhaps go for the slightly riskier, ‘‘semi-affordable’’ markets in the Southeast and Southwest, which are still experiencing a migratory boom. 

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.