Home Real Estate More Homes, More Buyers, But Prices Could Drop?

More Homes, More Buyers, But Prices Could Drop?

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Zillow just released its outlook for 2024, and a lot of investors will want to pay attention to what it says. From mortgage rates and prices to top markets and home flipping activity, the report offers predictions for all of it.

Here are the main points you’ll want to take away.

More Housing Supply Will Be Unlocked

According to Zillow’s economists, as well as general expectations surrounding the Federal Reserve’s moves next year, interest rates, including those on mortgages, are going to stay high for some time. 

The Mortgage Bankers Association forecasts 30-year loan rates to remain above 6% for the entire year, while Fannie Mae doesn’t expect them to drop below 7%. 

Because of this extended timeline, Zillow projects that previously gun-shy homeowners will soon come to accept those higher rates and start listing their homes. 

“With mortgage rates rising over the past two years, homeowners have been reluctant to sell, opting instead to hold onto the ultra-low interest rate on their current mortgage,” the report reads. “More of these homeowners will end their holdout for lower rates and go ahead with those moves.”

Home Price Growth Will Slow

With more supply will come slower price growth. As the report puts it, “More homes on the market—even the gradual increase Zillow economists expect—would be good news for homebuyers, spreading demand and easing upward pressure on prices.”

In total, the company only projects prices to remain steady, only falling about 0.2%. But when combined with a slight decrease in rates, it could mean an affordability boost for many looking to buy a home.

“Taken together, the cost of buying a home looks to be on track to level off next year, with the possibility of costs falling if mortgage rates do,” the report explains.

Urban Locations Will Grow in Popularity

Downtown areas and urban markets suffered during the pandemic, but it seems interest in the areas is picking back up—which is good news for rental property owners in these areas.

According to Zillow’s Observed Rent Index, the gap between urban and suburban rents is narrowing, and in 33 major metro areas, suburban rent growth is actually outpacing those in urban areas. That said, New York City is one area where urban interest is growing, and “Zillow foresees more markets following suit, with rental demand surging near downtown centers,” the report says.

An important thing to note is that many urban areas have experienced what Zillow calls a “multifamily construction boom” this year, which could pose a challenge for buy-and-hold investors in these areas. 

“A huge number of new homes have hit the market,” Zillow says. “More options for renters looking for a new place means landlords who are trying to attract tenants have more reason to compete with each other on price. That’s a key reason more rental listings are offering concessions.”

Landlords may also want to invest more into making their properties attractive to stand out from the pack.

AI Will Make Real Estate Easier

Advancements in artificial intelligence will make buying, selling, and shopping for properties easier next year, according to Zillow. The company predicts a slew of new AI-powered tools will hit the market in 2024—ones that improve listing descriptions, create 3D content, and offer other benefits that might be useful to agents, buyers, and sellers. 

Home shoppers can also expect “generative-AI-powered experiences” that help them gather valuable insights on properties and guide them throughout the mortgage process. 

Investors Will Have Some Competition

While Zillow does project more for-sale housing to hit the market in 2024, it won’t be enough to fully sate demand. This will push traditional homebuyers away from more move-in ready properties and into flipper territory, toward “homes that need a little work,” the company predicts. 

“Faced with limited choices, buyers will be willing to overlook small flaws, such as an outdated bathroom or kitchen,” the report reads.

For investors, this means more competition on these properties and, potentially, higher costs. As Zillow puts it, “These homes won’t come cheap.”

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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.

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