Home Prices Are High to Start Off 2024. Will They Come Down Later This Year?

The start of 2024 is proving to be a difficult time for prospective home buyers. Even though mortgage lenders have been lowering their rates recently, the average rate on a 30-year loan is still 6.66% as of this writing, according to Freddie Mac. That's considerably higher than the mortgage rates borrowers were looking at just a few years ago.

Compounding the problem is that home prices are high, too. In November 2023, the median home sold for $387,600, according to the National Association of Realtors (NAR). That's a 4% uptick from a year prior.

If you're hoping to buy a home in 2024, you may be wondering if prices will come down as the months tick along. And the answer is that home prices could come down. But a lot of that will depend on how expensive mortgage loans are.

Higher borrowing rates are contributing to a lack of inventory

As of late November, there were only 1.13 million housing units available for sale, according to the NAR. That may seem like a lot, but it only represents a 3.5-month supply of homes. It can easily take a six-month supply to meet buyer demand.

Any time there's a shortage of supply, whether it's related to things like homes or less significant purchases like gaming systems or sneakers, the cost of the item that's lacking in supply is likely to rise. That explains why home prices are elevated at a time when borrowing for a home is so expensive. 

But until mortgage rates start to come down, home prices are likely to stay roughly where they are. That's because a lot of people aren't selling right now to avoid giving up the competitive mortgage rates they locked in a few years ago. And if rates don't budge much this year, we could get stuck in a holding pattern.

Should you buy a home when prices are high?

Home prices could remain elevated for quite some time. So if you're looking to buy, you may need to resign yourself to paying more than you would have during a quieter market. 

That said, one thing you don't want to do is take on too much house. Figure out what 30% of your take-home pay amounts to, and make sure your housing expenses won't exceed that number. 

If you bring home $4,000 a month, it means you shouldn't be spending more than $1,200 on housing all-in. And that $1,200 includes your property taxes and homeowners insurance -- not just your mortgage payments.

Now, if you're willing to buy a fixer-upper, you may be able to get away with spending less on a home. But remember, in exchange for a lower purchase price, you may be looking at spending more on repairs. So keep that in mind as you weigh your options.

All told, mortgage rates are likely to drop to some degree this year if inflation continues to cool and the Federal Reserve cuts interest rates to follow suit. But we don't know to what extent they'll drop. 

As such, don't expect a lot of wiggle room with home prices. Instead, do what you can to work around today's market conditions, and crunch your numbers carefully to make sure you don't run into issues with affordability.