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When will housing prices drop?
Data from Realtor.com shows that existing home sales may be cooling — the typical home for sale spent 58 days on the market in October 2024. That makes it the slowest October for home sales in five years, and it's a far cry from the just-listed-to-pending trend seen during the housing market’s hot streak from 2021 to 2022. So you might be wondering: If the housing market is cooling, when will housing prices drop so I can get my slice of the homeownership pie?
Experts say that 2024 will likely not be the year that housing prices start their descent to pre-pandemic levels. But if you’re determined to buy or sell, here’s what you need to know about today’s residential real estate market and your options for moving forward.
In this article:
Learn more: Why are home prices so high?
Are house prices going down?
The answer to this question is more complicated than it has been in a while.
National house prices have been stabilizing and even trending downward in summer 2024 when compared to 2023 figures. As of October this year, Realtor.com reported that year-over-year house prices were flat, putting the median sale price at $424,950.
However, the cost per square foot has increased a little since last October.
Some reasons for the recent housing inventory shortage include homeowners reluctant to give up the ultra-low-rate mortgages they secured early on in the pandemic — especially when mortgage interest rates were hovering in the 7% range.
Home affordability also plays a role. Even if buyers are willing to give up those low mortgage rates to buy a new home, rising home prices and high mortgage rates can make that decision costly.
It doesn't help that mortgage rates remain stubbornly high. Yes, they are down from a year ago — but according to Freddie Mac, fixed mortgage rates have been increasing for weeks. Homeowners may not be ready to give up their super-low rates just yet.
Dig deeper: Which is more important, a low interest rate or house price?
When will house prices go down?
While it’s a bummer of an answer, experts say it’s unlikely consumers will see house prices drop meaningfully during 2024. Home prices will drop when a mixture of economic factors favorably collide — primarily lower interest rates and increased housing supply.
The interest rate waiting game
Those looking for lower interest rates will need to play a game of patience. The Federal Reserve has cut the federal funds rate twice in late 2024, but these decreases haven't pushed mortgage rates down. We will have to see if the central bank decides to keep cutting rates at its December meeting and into 2025. If they indicate more slashes, investors' optimism could lower mortgage interest rates.
Read more: When will mortgage rates go down? A look at 2024 and 2025.
Amping up supply
Increasing the housing supply will involve two factors: current homeowners and home builders. These two demographics drive housing supply from different angles.
For current homeowners, leaving a 3% mortgage for one in the 7% range is a tough pill to swallow. Bob Smith, head of real estate at Advisor Credit Exchange, said via email that supply will naturally increase as homeowners upsize, downsize, or move to another metro, lower interest rates will increase housing affordability across the board. As rates come down, sellers may feel inspired to sell while they can still capture gains from recent price hikes and score a lower rate on a new mortgage.
Builders also contribute to the housing supply. At present, new home starts are down slightly (0.6%) compared to 2023, said Sameer Samana, senior global market strategist with the Wells Fargo Investment Institute, via email. Builders had significant inventory on hand when the pandemic hit and don’t want to repeat that error, especially with some prospective home buyers reluctant to buy while they wait for rates to drop even more.
So, if you think interest rates may play a significant role in supply, you’re right. Though rates aren’t the only factor driving housing costs, they are a bit like the key that could help increase supply and unlock a downward price trend.
Read more: Buying a new construction home — pros, cons, and how to finance it
Strategies for eager buyers
Despite the lack of hope for falling home values for the rest of 2024, those eager to buy aren’t left out in the cold. Here are a few strategies to consider if you see homeownership in your not-so-distant future.
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Buy with an eye on refinancing. Samana said buyers could get into the market today with a home in their price range and look to refinance down the line. While you might get less house for your budget, you can start building equity. When rates come down, you can refinance your mortgage to a lower rate or even a different type of mortgage loan altogether.
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Start small. While it might not be your dream home, you could find housing happiness in today’s market by purchasing a condo or buying a lot and putting a tiny house on it. Both home types can cost considerably less than a single-family home and help you build equity that translates to cash when you’re ready to upsize.
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Go modular. No, these aren’t mobile homes. Modular homes are those that look just like a single-family home when constructed. The only difference is that they’re built in modules off-site and assembled when they get to your lot. They can also cost 10% to 20% less than a traditionally built home.
Learn more: 12 popular types of houses for buyers
Housing prices FAQs
Will 2024 be a good time to buy a house?
2024 may be a good time to buy a house because interest rates are significantly lower than this time last year, and the future of mortgage rates is hazy. Keep in mind that if rates drop, housing prices and competition will probably increase.
Is it a good time to buy a house?
It’s a good time to buy a house if you find one you can afford and feel emotionally and financially ready to take on the responsibility of homeownership. The best time to buy a house is when you have solid finances, a steady employment track record, and a credit history showing you responsibly handle your debts.
Will U.S. housing prices ever drop?
Typically, house prices will fall when supply exceeds demand, and sellers need to lower prices to entice buyers. As of Q4 2024, home supply is increasing, but not to the point where the number of homes for sale outnumber those in the market to buy.
This article was edited by Laura Grace Tarpley.
