Navigating the 2024 Housing Market

In a recent article, Bloomberg columnist Karl W. Smith called today’s housing market “bananas.”

I agree. Trying to predict the housing market feels a little like following a GPS that recalculates every two seconds—sure, you’ll get somewhere eventually. You’re just not exactly sure where or how.

Understanding the factors that drive the housing market is crucial for professionals in home building. As a 20-plus year veteran, I’ve witnessed firsthand how economic elements can shape the industry’s dynamics. Here are what I see as the key factors influencing the housing market.

Interest Rates: The Pulse of the Market
What’s going to happen with interest rates in 2024? No one is expecting huge swings either way. Fannie Mae is projecting that rates will dip below 6%, which I think will produce huge waves of demand from shadow buyers who have been sitting on the sidelines waiting for home purchasing affordability to become more favorable. The paradox is that this forecasted dip in interest rates will likely drive higher demand, which in turn will presumably lead to increases in pricing. So even if interest rates dip, I predict that any affordability gains will be greatly reduced by demand-based, rising prices.

Jobs and Employment: How They Affect Home Building
It’s no secret that a robust job market boosts consumer confidence and purchasing power, encouraging home buying. The January 2024 Employment Report from the White House gave us reason for optimism while also painting a mixed picture by showing job growth in some sectors and decline in others. For example, we are seeing layoffs in big tech, which will likely restrict some tech-heavy markets in California. On the other hand, expansion in health care and social assistance will likely boost health care-driven housing markets in Texas and some other parts of the Midwest and East Coast. You know what they say … location, location, location.

Economic Growth and Recession Fears: Understanding the Big Picture
Recently, Fannie Mae revised its economic forecast from an expectation of a recession to a modest expansion of 1.1% in real GDP. However, the risk of recession is still present due to the lagging impact of higher interest rates and potential unforeseen economic shocks. With fluctuating predictions and information, I think it’s safe to say buyers are confused. And there’s one thing I do know—a confused mind says no.

Global Factors: The World’s Influence
While many of us may consider the nation’s housing market a U.S.-based conversation, the reality is that the world’s stage can and does dramatically impact the prosperity of the market. International trade dynamics, geopolitical tensions, and global economic health can indirectly (and even sometimes directly) influence domestic housing demand and supply chains, which greatly impact pricing and availability.

Staying Ahead by Keeping Up With the Changes
Even with so many unknowns, we have many reasons to be optimistic.

• People have always and do now need homes;
• We have been dramatically undersupplying the housing demand for years; we are not in a situation of overextension; and
• We are not so upside down on affordability as to render the housing market crippled.

To navigate the 2024 housing market effectively, builders should:

• Focus on affordability by considering developing products that are financially attainable for larger segments of the market;
• Look for opportunities to streamline construction processes to reduce waste and potentially lower cost, collaborate with financial institutions to create attractive financing packages for potential buyers that could help maintain sales even if interest rates of sales prices fluctuate, and prioritize building in locations with job growth;
• Leverage market data to understand buyer trends and preferences to make informed decisions about development locations and home features; and
• Embrace technology such as artificial intelligence to improve operational efficiencies, enhance customer experiences, and establish a competitive edge in the market.

Understanding today’s signals equips you for tomorrow’s housing market success.