Will the Housing Market Crash in 2024?

It seems experts and real estate agents have been anticipating a housing market crash since the pandemic as home prices skyrocketed and interest rates on mortgages doubled, but it hasn't happened yet. Is 2024 the year?

“The housing market is entering 2024 at an interesting point,” says Danielle Hale, Realtor.com’s chief economist. “While many experts anticipated significant price declines in 2023, the housing market largely defied those expectations with home sales prices dipping on a year-over-year basis for just four months, and typical home asking prices falling for just two. The factors that led analysts to expect home price declines remain largely unchanged or worse.”

What’s on the horizon for the coming year? Experts have mixed views, but most agree a crash isn’t likely. Instead, they’re anticipating what they’re calling “a full reset,” a “downturn,” or a “correction.”

With each passing season, we have yet to see the drop so many feared was coming. Indeed, several agents warned last year of a correction in the market that would signal a shift back to normal prices and more inventory plus less competitive bidding. Still, in many parts of the country, the market seems as competitive as ever, especially for first-time buyers. 

“Real estate is a major driver in our economy and the Fed must see the logjam that now exists. It’s a question of when (mortgage) rates will start to drop meaningfully, not if they will,” says Melissa Cohn, the regional vice president of William Raveis Mortgage. “My guess is that Christmas won’t come for the real estate sector until the beginning of 2024.” 

Looking Back

When the pandemic hit and many employees began working from home, renters decided they wanted more space, and homeowners decided they were due for an upgrade. Everyone wanted a home office and a yard to relax in; a boom began with the market. 

Soon, home prices were rising to astronomical levels. 

To correct the boom and account for inflation, the Feds began raising mortgage interest rates. Doing so discouraged many buyers from either entering the market or selling their current home to upgrade. Now, supply is decreasing for that reason.

“Supply is down because many would-be sellers are staying on the sidelines. If they move, they would have to replace their existing cheap mortgage with a much more expensive one, possibly going from 3.5% to closer to 8%,” says Robert Elson of Coldwell Banker Warburg.

With tight inventory, home prices continued increasing, although many believe they are leveling out now. 

“Although home prices are down slightly from 2022 peaks, the decline is modest, whether we’re measuring sale prices or listing prices,” Hale says. “The number of homes for sale is above record lows hit in early 2022, but remains 45% below what was typical from 2017 to 2019.”

Low inventory, in turn, spurred an increase in new construction, which Hale says is predicted to continue. 

“Despite affordability headwinds, home builders have so far capitalized on the dearth of existing homes for sale by maintaining a relatively robust pace of construction,” she says, pointing to an October report on the trend. “As long as mortgage rates remain elevated, we are likely to see this trend continue,” Hale said.

In that report, Hale points out that while increasing mortgage rates prevent some buyers from entering the market, they can also have the opposite effect of spurring them into signing a contract in anticipation of even higher rates coming down the pike. 

So, Will the Market Crash?

Experts don’t anticipate a housing market crash in the next year. As Steve deGuzman,  founder and CEO of rēhavaPress points out, the 2008 crash was the result of homeowners not being able to pay their mortgages. While factors are at play making mortgages higher for buyers, banks have changed their lending practices in the years since. 

“Lenders are issuing mortgages with stricter lending standards than before the Great Recession,” deGuzman says. “This helps reduce the risk of borrowers defaulting on their loans, leading to a housing market crash.”

Instead, agents and brokers believe mortgage prices and interest rates will continue to stabilize, if not decrease, over the next year. 

“The higher rates could be the new normal,” says Lindsey Harn, an agent with Christie's International Real Estate. “However, if economic factors force a large percentage of people to put their homes on the market, I would start to get concerned.”

Harn says that if a sharp increase in sellers and inventory of three to four times the current level were to take place, there would be what she calls “a strong correction” in the market. 

“If the inventory stays low, and even if demand drops, it will still be a strong market though,” she adds. 

What’s Happening With Interest Rates?

Interest rates doubled in 2022, causing many to wonder if a crash was coming in the market, but many point out that the rate is a number we’ve seen before, even recently. 

“If you look back on the 30-year fixed interest rate over the last 50 years, the average interest rate has been 7.75%,” Harn says. “So while the rates seem high, currently they are actually normal over the course of history.”

Many agents believe these rates will hold firm in 2024 or even dip down a bit.

“The 30-year mortgage rate in the U.S. averaged 7.74% from 1971 until 2023, reaching an all-time high of 18.63% in October 1981 and a record low of 2.65% in January of 2021,” Harn says.

Indicators and Trends Experts Are Monitoring

Experts are keeping their eyes on all kinds of numbers and trends that could indicate major changes in the market. 

Rhett Wiseman, founder and CEO of Wiseman Advising LLC / Section8Coaching.com, is watching the number of new construction builds because a halt or decrease could mean less inventory for interested buyers. If that’s the case, many homeowners looking to sell will likely choose to stay in their homes to avoid a higher interest rate on a new mortgage, further decreasing inventory. 

Foreclosures and mortgage delinquencies, which could indicate that borrowers are struggling to make payments and that the housing market is weakening, are factors deGuzman says he’s watching. Additionally, he says a decline in home sales and prices could be signs of a downturn.

Hale says many economists have worried on and off about a recession since the Fed began its “monetary tightening” and that this, too, could greatly affect the housing market. 

“A recession in 2024 would likely weaken housing demand beyond its current low level, and if it were significant enough, it could stress existing homeowner finances enough to prompt some to sell, reversing the supply-demand balance that we’ve seen in the last few years,” she says “In other words, a recession in 2024 could cause home prices to weaken.”

What’s Next

Rather than a full crash, Noah Rosenblatt, co-founder of UrbanDigs, anticipates a reset. 

“I don’t think the market is going to fall off a cliff, like during the great financial crisis or the pandemic. I think in the state we are currently in, there will be a longer duration of lower transaction volume where the pain is felt over time, not necessarily in the early stages,” he says. “I do not expect a cliff dive type of price reset but rather a longer, more sustained downturn which has likely not even started yet or is in its very early stages.”

Harn points out that with November 2024 on the horizon, she anticipates smooth sailing. 

Should interest rates drop back down to the 3%-4% range, she anticipates “a major influx of buyers,” and if rent continues to rise, buyers will still see the value in homeownership despite high rates, she adds. 

Of course, a major or even minor recession could change that. Harn says that’s when qualified buyers leave the market following job loss and job insecurity. 

“If the inflation does not get under control, the second home market could soften as these are discretionary purchases and not required purchases like a secure shelter,” she adds. 

Current housing market trends, though mixed, have kept in line with historical shifts so far, says deGuzman.

“On the one hand, housing prices are still rising, albeit slower than in recent years. On the other hand, home sales are starting to decline slightly,” he says. “These trends are generally in line with historical data. Housing prices tend to rise over time, but they also tend to experience periods of volatility. Home sales also tend to fluctuate over time, but they typically remain relatively stable.”