12/29/2023: 2024 Prediction: House Prices Will Fall
We are not going back to 3% mortgages any time soon
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Here is my controversial prediction for 2024. Many people will disagree with me on this but I believe house prices are set to decline in 2024. Mortgage rates have declined from 8+% in October to ~6% today but chances are mortgage rates are not going back to 3% anytime soon. Because of the high mortgage rates and the fact that a lot of homeowners are holding onto their low rate mortgages, home sales volume has decreased dramatically in 2023. But people can only hold out for so long. If they need to move, they need to move. The current home sales volume is not sustainable in the long run.
The US housing affordability index reached a record low earlier this year. The ZIRP/QE policy inflated home prices to unsustainable levels, and the subsequent rate hikes made new mortgages unaffordable. There are two ways to make housing affordable again: allow home prices to fall or lower mortgage rates. Both options will cause some damage, but allowing home prices to fall is probably better than lowering rates and risking inflation. Mortgage rates did already go down 2 percentage points from the October high but sellers probably still need to readjust their price expectations to increase home sales volume. I do not anticipate a housing crash, but I believe a modest price decline is likely and probably healthy in the long run. The October 2023 Case-Shiller National index is 312.95. I predict the October 2024 number will be lower.