Looking for a home this year felt impossible, as someone trying to buy a first home.
I set alerts for listings with two real estate agents at two different firms as well as, of course, on Zillow and StreetEasy. And, yes, I'll admit, on Cabin Homes (a city girl can dream...). I was looking widely for different types of homes in different locations, from city apartments to suburban ranches, and over and over again it was the same story: inventory is extremely low, and the price of homes was slow to react against risen interest rates.
Now, a new analysis from the real estate company Redfin bears my experience out. Only 16% of homes listed for sale in 2023 were affordable, based on Redfin's calculations, but the situation should start to change in 2024.
Redfin's analysis considers a listing affordable if the estimated monthly mortgage payment is lower than 30% of the local county's median household income. That 16% number is the lowest percentage in Redfin's 10 years of data. In 2022, 21% of listings were affordable, and before the pandemic boom, over 40% were affordable, by the company's analysis.
The stark numbers are something to behold. In 2023, there were 352,500 affordable listings. In 2022, there were 596,135. It gets rougher: during the prior decade, there were over 1,000,000 affordable listings per year.
Primary reasons for this lack of affordability were mortgage rates and inventory and, naturally, the interplay of those factors. Higher mortgage rates meant that monthly mortgage payments started to get out of reach for more people. It also meant that people who already own homes didn't want to sell and lose their lower interest rate, putting fewer homes on the market. That left people like me scrambling with the realization that, for the time being, renting was cheaper than buying (please don't tell me about how good home equity is in the long-term, trust me, I'm aware).
There are some caveats to this data. First, the analysis assumed only a 5% down payment, which has obvious impacts on monthly mortgage payment estimates. Additionally, the analysis used the average 30-year-fixed mortgage rate, while it is possible to shop for a low mortgage rate.
What could happen to housing in 2024
There is good news on the horizon if you want a new home in 2024. But don't expect a quick change in fate.
Mortgage rates are already falling since the Federal Reserve halted interest rate hikes this fall and winter, making monthly payments more affordable, but they're still higher than in even the recent past.
Home prices, while not plummeting, are at least slowing down, something I've noticed in my own perusal of listings. It's not the frenzy it was in 2022, nor is it the completely out-of-reach situation of mid-2023. The Kiplinger Letter team predicts home prices won't fall, but will rise at a slower pace, while lower mortgage rates will bring more sales. The Letter team also expects that homes will get fewer offers than this year, and more offers will require home inspections and other contingencies.
So if, like me, you're still hoping to buy a home, 2024 could be our year. See you at the cabin!
