3 home price scenarios that could occur in 2024

While home prices continued to rise in 2023, issues like high interest rates worked to temper homebuying. For example, the latest Redfin data from November 2023 shows that home prices were up nearly 4% year over year, while the number of homes sold declined by over 7%. 

But what will happen in 2024? While the Federal Reserve has signaled that it will likely start easing interest rates in 2024, there's no guarantee as to if or when that will happen, and that's not the only factor that will drive real estate prices. Other issues like the available housing supply also have an influence.

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3 home price scenarios that could occur in 2024

Let's take a look at three possible home price scenarios that could occur in 2024 and what might cause those scenarios to happen:

Home prices could rise

One possible scenario is that home prices could continue to rise in 2024.

"Barring a major geopolitical event or changes in public policy, home prices are expected to rise again in 2024. Record low inventory coupled with high demand and falling interest rates — which will improve affordability and homebuyer confidence — will likely put continued upward pressure on prices," says Gregg Menell, CEO and managing broker at Pendulum Property Group.

According to Fannie Mae, the top 75 metro areas in the U.S. have a combined housing shortage of approximately 4.4 million units.

"That is unlikely to be resolved any time soon," says Menell.

Even if mortgage rates drop, many homeowners locked in even lower mortgage rates during the pandemic and don't want to give that up by selling, he adds. Thus, if the supply/demand balance doesn't improve, home prices could increase more.

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Home prices could drop

Another possible scenario for 2024 is that home prices drop if the supply and demand balance improves. While that could happen in some local markets, Menell does not foresee that happening nationwide in 2024.

That said, it's possible that new events could occur that shift supply and/or demand enough for home prices to drop more broadly.

On the inventory front, new housing starts rose by nearly 15% from October to November 2023 and over 9% year over year, according to the U.S. Census Bureau and the U.S. Department of Housing and Urban Development.

Still, "there is always a lag as inventory isn't built quickly, so resale will have to enter the market and put some pressure on pricing," says Nicholas Ritacco, portfolio manager at IB Global. 

What could cause current homeowners to sell more? One example could be changes in public policy, like prohibiting short-term rentals in certain areas, causing investors to sell these properties, says Menell. Another could be adjustments to local zoning laws that could cause some homeowners to sell if they do not like these changes, he adds.

Changes in demand could also cause sellers to lower their prices. Among the many possible scenarios that could lower demand, one example, says Menell, could be tax increases that price some buyers out of certain markets, while simultaneously causing some homeowners to sell to move to more lower-tax areas. A financial system disruption that makes it more difficult to get mortgage approvals could also lower demand, he adds.

Home prices could remain steady

A third possible scenario is that home prices could hold steady.

"This is possible in some markets that have appreciated significantly over the last few years, as and where buyers are unwilling or unable to push prices higher," says Menell. "The continued drop in interest rates, however, is likely to improve buyer confidence and result in higher demand and prices."

That said, it's unclear what exactly will happen with interest rates, and not everyone agrees on what this will mean for prices. It's possible, for example, that a modest decrease in mortgage rates holds back demand enough for supply to catch up, which could cause prices to move sideways.

"The biggest impact on home prices will be tied to any significant change in Fed policy; as of now and only as of recently have they indicated a decrease in rates. The stock market has already responded positively and the Fed has tried to dial back those expectations," says Ritacco. "The news has helped the mortgage market slightly, but not enough to make any substantive change in affordability. A more significant decline would be required to see transaction volume increase from current lows."

Be ready for any scenario

While these are three possible scenarios for real estate prices in 2024, keep in mind that home values can look very different depending on what real estate market you're looking at.

"Real estate is local," says Erin Sykes, chief economist, real estate advisor and real estate agent at Nest Seekers International. Among these three scenarios, "we will see all of the above based on geography and inventory levels," she adds.

So, both buyers and sellers should consider preparing for any of these scenarios.

For buyers, "the key would be to narrow down what you are looking for and what you can afford in different scenarios," says Ritacco.

For sellers, he says, consider what it would cost to replace your current home with a comparable one, and consider whether you want to upgrade or downgrade after selling.

"Understanding your options across the board will help you navigate a changing market," he adds.