In a surprising turn of events, Zillow recently revised its outlook for U.S. home prices in 2024, projecting a 3.7% increase as opposed to its earlier forecast of a flat market. This shift is attributed to external factors, primarily a decline in mortgage rates and a more positive inflation outlook from the Federal Reserve. Zillow's senior economist, Nicole Bachaud, notes that lower mortgage rates have made monthly payments on a typical home $413 cheaper than in October 2023, potentially unlocking new buyers and intensifying competition in the housing market this spring.
Meanwhile, Redfin reported a significant 5.1% increase in home prices during the four weeks ending January 21, marking the largest surge since October 2022. Despite this, Redfin's chief economist, Daryl Fairweather, predicts a 1% decline in home prices year over year in the second and third quarters of 2024—hinting at the first potential decline since 2012.
Bachaud reassures buyers that the 3.7% projected appreciation aligns with historical housing norms of 3% to 5%, emphasizing that the market is not likely to witness the rapid growth experienced during the pandemic. However, uncertainties persist, and Redfin acknowledges the possibility of price fluctuations amid a complex economic landscape.
A key factor influencing the housing market is the historically low housing inventory, which has driven prices upward in recent years. Bachaud notes a change in this trend as 2024 sees new inventory entering the market, driven by existing homeowners feeling liberated from high mortgage rates. Additionally, a "building boom" in 2021 and 2022 is contributing to increased inventory, helping balance demand and preventing rapid price acceleration.
While Zillow and Redfin's forecasts differ slightly, both underline the importance of mortgage rates in shaping the housing market. If rates continue to fall, increased buyer activity could drive prices up, while any unexpected inflationary pressures might have the opposite effect. As the market adjusts to evolving conditions, the outlook for U.S. home prices in 2024 remains uncertain, emphasizing the need for cautious optimism among potential buyers and sellers.
