2023 Home Sales Fell to a 28-Year Low. Will Sales Pick Up in 2024?

It would be more than fair to classify 2023 as a difficult year to buy a home. Not only were home prices elevated, but mortgages were expensive to sign from the start of the year through the end of it.

Meanwhile, the National Association of Realtors reports that home sales fell to a 28-year low in 2023. And on a year-over-year basis, they declined 19%, with only 4.09 million homes sold.

But the reason for sluggish sales isn't a lack of buyer demand. Rather, it's a lack of inventory.

There just weren't homes to sell

You'd think that buyers would've run from the housing market in 2023 due to high mortgage rates. But actually, in 2023, the median home sale price was $389,800, up about 1% from 2022 and the highest on record. This tells us that demand is strong enough to result in an uptick in home prices.

As such, the fact that home sales declined notably in 2023 largely boils down to a lack of housing inventory. Simply put, if there aren't homes available to buy, sales figures are apt to be limited.

Will things change in 2024?

Home sales could pick up in 2024 -- but only if real estate inventory increases. And whether that happens will largely come down to how mortgage rates trend.

Part of the reason it's so expensive to sign a mortgage these days is that the Federal Reserve raised interest rates in 2022 and 2023 to cool inflation, and that's resulted in higher borrowing costs across the board. The Fed has signaled that it may start cutting interest rates later on in 2024. Once that happens, mortgage rates could start to drop. And from there, we could see more homes hit the market.

See, a big reason there aren't many homes for sale now, and there weren't in 2023, is that many new buyers locked in low mortgage rates in 2020 and 2021, when rates plunged to record lows. And during that same period, a lot of existing homeowners refinanced their mortgages to take advantage of the low rates that became available.

Meanwhile, mortgage rates were elevated for all of 2023, and so far, they've been high in 2024. But if rates start to come down, it could prompt some existing homeowners to list their properties.

To put it another way, someone with a 3% mortgage rate isn't going to want to swap that for a loan at 6.87%, which is the average rate for a 30-year mortgage as of this writing. But swapping a 3% loan for a 5% loan may be more palatable.

Of course, this isn't to say that mortgage rates are going to drop as low as 5% this year. That may not happen. The point, however, is that as mortgage rates start to come down, housing inventory should improve. That should lead to not only higher sales, but lower prices. But the extent to which the market becomes more favorable for buyers on a whole in 2024 is still yet to be determined.

If you're hoping to buy in 2024, keep track of interest rates in general, as those could trickle down and have an impact on mortgage rates. Also do your best to boost your down payment funds and improve your credit score. The higher that number is, the more likely you are to qualify for whatever the best mortgage rates are at the time of your application.