Economists on 2024 so far: ‘The year of the head fake’
So much for that housing market recovery everyone was expecting. Builders and boomers could provide bright spots, but what about the NAR settlement?
Key points:
- In a panel discussion, economists acknowledged that the housing market recovery is happening more slowly than expected.
- The NAR deal has created additional uncertainty, but it doesn’t necessarily doom first-time and underserved buyers.
- New construction continues to make up an outsized share of the market, and aging baby boomers may boost supply over the next decade.
Pull together a handful of the industry's top economists and a clear theme emerges: From interest rates to inventory, this year has defied expectation.
"We expected a recovery, but instead it has been more of the same," said CoreLogic Chief Economist Selma Hepp, calling 2024 "the year of the head fake."
And things aren't getting back to normal any time soon. Lawrence Yun, chief economist at the National Association of Realtors, expects a return to pre-Covid sales in 2026 — assuming interest rates decline to 6.5% and the NAR settlement has limited effects.
So it will be "a long recovery," Yun said. In the meantime, though, here's what experts are seeing — and what else the future may hold. Hepp, Yun and Odeta Kushi, deputy chief economist with First American Financial Corporation, shared their perspective at the Economics Roundtable, a highlight of last month's conference of the National Association of Real Estate Editors.
What will the NAR settlement do to the housing market?
Starting August 17, offers of buyer agent compensation will be removed from MLSs. Yun said this could hurt first-time and first-generation buyers who may struggle to scrape together a down payment, much less pay an agent out of pocket. "Has the American Dream completely been taken away from less fortunate people?" he asked.
That will be the storyline of a year from now, he added. But there's still a way for the story to end happily.
"Many real estate agents think that they can convince a home seller of the value of offering compensation to the buyer agent or providing the seller concessions" which can be used to pay an agent, Yun said. "We'll see, but there is big uncertainty out there."
Business is booming — if you're a builder
Overall home sales are down, and last year saw the lowest number of home sales in nearly three decades. So real estate agents are hungry for transactions.
Meanwhile, builders are "back on their feet and looking to do more," with their stock prices up and sales strong. Why? "If you jog around a neighborhood and look for 'For Sale' signs, you're not finding much," Yun said. "But if you're looking at construction, cranes, new subdivisions — inventory is rising."
Instead of making up a tenth of overall homes for sale like they did 10-15 years ago, new construction now makes up a third of inventory, Yun said. Existing-home inventory is starting to pick up, he added, though sales have yet to show the same spark.
Home prices going up — but not everywhere
Hepp said that with inventory improving but still tight, 2024 will be "another really robust year for home prices, stronger than last year." But price growth will look different this year because of where it is happening, and how unevenly it is distributed.
Last year, it was the more affordable housing markets of the South and Southeast that saw the most price appreciation. Now, Hepp said, "we're seeing a lot of appreciation in the Northeast, particularly markets that surround large labor pools … some in the Midwest and California, particularly Southern California."
Nationally, home prices are reaching new peaks in many areas, Hepp said. But there are also markets that haven't recovered back to 2022 levels — places in Texas and the Mountain West that saw a lot of appreciation during the pandemic. Now, however, with fewer people moving into those markets, home prices are returning to less overheated levels.
A boost for supply as boomers age out of homeownership
How bad is the gap between the number of would-be homebuyers and the number of available homes? "Even if all the housing units that are under construction came to market tomorrow, it would not be enough to make up for the housing deficit over the last decade," Kushi said.
From a generational perspective, millennials are adding demand to the housing equation and baby boomers will be increasingly adding to supply.
"The population of 80-plus-year-olds is expected to double between now and 2040," Kushi said. Which means the trend of boomers aging out of their homes will pick up speed in the 2030s, "and baby boomers own a lot of properties in highly desirable areas."
Millennials do want to buy houses, by the way. They're just buying them later compared to previous generations, Kushi said. The 30-year-old millennial has a homeownership rate that's about six percentage points behind Gen X. But the 40-year old millennial is "just about two percentage points lower than the Generation X. So millennials are interested in homeownership."