It’s been one of the most challenging years on record for the housing market, with rock-bottom inventory and mortgage rates hitting highs not seen in the past two decades. If you’ve been hoping to buy or sell in the new year, you’re probably wondering if we’ll ever see any relief.
While we’re likely not entirely out of the woods yet, Zillow® economists predict 2024 will bring improvement on several fronts, including affordability. “This is our breather year,” Zillow Chief Economist Skylar Olsen says. “I expect the beginning of a long healing process to kick off in the housing market next year.”
What will this look like? For one, although homes will remain expensive in 2024, Olsen says, you’re likely to have more to choose from as sellers adjust to higher mortgage interest rates and list their homes in greater numbers.
Read on to learn what else our economists are expecting for the coming year, and what to know whether you’re buying, selling or renting.
1. Home buying costs will level off
After a year in which mortgage rates hit highs not seen in 23 years, buyers in 2024 are expected to get a little relief.
No one can predict what will happen to mortgage rates, but high inflation — which drove interest rate hikes in 2023 — continues to drop toward the Federal Reserve’s target. If the trend continues as expected, it would likely mean less volatility in mortgage rates. Meanwhile, wages continue to grow and home values are expected to remain stable, falling only 0.2% in 2024.
The combination of bigger paychecks, stable home prices and less volatile mortgage rates should provide breathing room for buyers struggling with affordability.
2. More homes will be listed for sale
After a year of low inventory, the housing market is finally getting more choice again. More sellers are expected to list their homes for sale as they come to terms with the fact that we appear to be in an era of higher mortgage rates.
A majority of mortgage holders (80%) are paying less than 5% interest on their home loan, having locked in the rates when they dropped to historic lows in 2021. Zillow research found that many homeowners who might otherwise sell were reluctant to do so because it would mean having to pay higher rates on their new home.
Any increase in listings will no doubt be welcome news if you’re shopping for a home. Not only will you have more options, but an increase in listings could help ease competition in the market, which in turn could help keep prices from climbing.
3. The new starter home will be a single-family rental
Would-be home buyers are looking for ways to get the amenities they want, whether that’s a private backyard or more privacy, even if a home purchase is out of their budget right now. Single-family home rentals answer that call, and are expected to become the new “starter home” as families rent for longer.
Given the expected demand for single family homes, some of the homeowners who have been thinking of selling could become landlords instead, boosting the number of single family homes for rent. New buyers could become landlords, too, as they look for ways to lower the cost of housing.
A recent Zillow survey found that 39% of recent home buyers say it’s very or extremely important that they have an opportunity to rent out part of their home for extra income while living in it. That desire is even higher among younger buyers: 55% of millennial and 51% of Gen Z homebuyers expressed the same sentiment in the survey.
4. Expect stiff competition for rentals near downtowns
Suburban rent growth still outpaces urban rents in 33 of the 50 largest metro areas in the U.S.* but the gap is narrowing, especially in areas with easy access to downtown office hubs. This is likely due to workers returning to downtown offices, and people seeking out amenities they might have avoided during the height of the pandemic.
In New York City, for instance, rental demand is surging in areas with easy access to Downtown or Midtown Manhattan, while areas farther from these neighborhoods are seeing relatively less demand, according to data from StreetEasy, Zillow Group’s New York City real estate marketplace.
Zillow economists predict other urban markets will follow suit. The good news for renters: A multifamily construction boom in 2023 brought a huge number of new rentals to the market, giving renters more options and increasing the likelihood that landlords will offer concessions to attract and keep them.
5. “Fixer” homes will become more attractive to traditional buyers
Homes in need of “TLC” are usually the target of “home flippers,” who remodel or spruce them up in hopes of quickly turning them for a profit. But higher home prices have made flipping harder to pencil out, so buyers looking for a primary home could face less competition from flippers than they might have in previous years.
This could be good news if you’re in the market for a fixer, which can be a great option if you’re buying your first home. Fixer-uppers are usually priced lower than comparable homes that don’t need work and could give buyers an opportunity to make improvements over time.
“Zillow data finds homes that need a little TLC sell for 3.1% less than similar homes,’’ says Zillow home trends expert Amanda Pendleton. But, she adds, “The lack of housing inventory is keeping prices elevated for all homes, even those that need work. Buyers have few options and may still have to compete for the few homes that are available, which can lead to higher sale prices.”
The question for buyers, she says, is whether the lower price is enough to cover the costs of improvements you may want or need to make after the sale closes.
When buying a fixer, it’s important to get an inspection so you know what you’re getting into. An outdated bathroom may bug you, but it’s not likely to pose the same risk as a termite-eaten support beam.
6. More home improvements will be done by homeowners
DIY is expected to get even more popular as home buyers squeezed by home prices and interest rates seek to improve their homes instead of moving. If you’re one of them, now might be a good time to get acquainted with your friendly neighborhood tool library and salvage businesses.
If you’re on the fence about what home projects you’re equipped to tackle, check out this article.
7. Home buyers will seek out nostalgic touches and sensory pleasures
Some of the trends we’re seeing in home design are centered around wellness and nostalgia.
Sensory gardens, Murano glass chandeliers, painted murals and cold plunge pools, are showing up in more listings, according to a Zillow analysis of home features and design styles mentioned in for-sale listing descriptions.
The brutalism design style, featuring things like concrete floors, is also making a comeback, and with pickleball becoming a national obsession, more listings are mentioning pickleball — likely highlighting their proximity to a court as a selling point.
8. Artificial intelligence will enhance home search and financing
Expect artificial intelligence to open new experiences for home buyers and sellers and their agents.
“Artificial Intelligence is already making the home buying and selling process easier through automation, personalization, and self-service,’’ says Josh Weisberg, Zillow’s senior vice president of artificial intelligence. “We expect to see an increase in tools and products that make home shopping more streamlined.”
For example, shoppers can now use a new AI-powered search feature called Natural Language Search to find homes on Zillow in the same way you might text friends and family, like “open house near me with four bedrooms.” AI also allows sellers to highlight their home’s best features and gives buyers a deeper understanding of a home before they ever step inside with panoramic photos that can be used to generate 3D Home Tours and interactive floor plans.
And, of course, there’s the Zestimate, which provides a starting point to understand what their home is worth, and uses deep learning techniques to capture market trends on a national level.
Expect more of those types of experiences in the future.
* Year-over-year changes, as of October 2023.