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After dropping for several consecutive months in 2023 following a peak in June 2022, house prices have started to recover, rising back up in many areas across the country.
But experts think this growth is not going to last. Prices will start dropping again in 2024, as predicted by Morgan Stanley, the multinational investment bank and financial services company.
By the end of 2022, many wondered whether the price correction unfolding in the housing market might have turned into a proper crash, despite experts’ reassurance that it would have likely not been the case. While the market might cool down, housing analysts said, historically low inventory would prevent prices from crashing down.
But the market remained relatively stable through months of price declines in the first quarter of the year, as aspiring homebuyers, unable to match asking prices, were squeezed out of the market. Already in February, experts said that the housing market had started to recover, with the complicity of the same lingering supply shortage that first led to house prices booming during the pandemic.
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In May, home prices grew for the fourth consecutive month, according to the latest S&P CoreLogic Case-Shiller Index, rising by 0.7 percent compared to April. The average U.S. home value is $348,853, up 1.2 percent over the past year, according to the latest numbers from the real-estate marketplace company Zillow, which refer to June 30.
While experts disagree on where the U.S. housing market is headed through the rest of the year and in 2024, Morgan Stanley expects prices to fall by 2 percent next year.
“We forecast house prices in 2023 to finish the year flat vs. 2022 before falling 2 percent in 2024 as affordability continues to adjust slowly back to long-run averages and inventories begin a slow climb off multi-decade lows,” the company wrote in a recent report mentioned by Yahoo Finance.
“Housing turnover (activity) has bottomed, but tightening lending standards and a persistent gap between new and outstanding mortgage rates are likely to prevent a meaningful increase in activity this year,” it added.
Newsweek contacted Morgan Stanley for comment by email on Tuesday.
Mortgage rates will likely play a key role in determining house prices next year, as mentioned by Morgan Stanley. Though the Federal Reserve’s campaign to lower inflation is nowhere as aggressive as it was in 2022, interest and mortgage rates remain high—an additional challenge for homebuyers.
“Higher rates and tighter credit conditions have slowed home building and cooled home sales volume in the past year,” Orphe Divounguy, Zillow’s senior economist, told Newsweek. “High rates are also crimping the supply of new listings, as many current homeowners have little incentive to give up their existing, low-interest loans. Cooling inflation and lower mortgage rates would put wind in the sails of both housing supply and demand.”
Lower rates, on the other hand, would support builders who have stepped up in a big way to fill the gap in inventory, Divounguy said. “New home sales are up 24 percent from last year, and builders are pivoting to produce more economical, smaller homes that are increasingly being built or started off-site.”
Unlike Morgan Stanley, Zillow’s chief economist Skylar Olsen expects home prices to continue growing in 2024.
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