RECAP: Keller Williams Market Update 2024

Whether you’re a buyer or a seller, a long-time industry veteran or someone who’s brand-new to the real estate game, there’s lots to be learned everytime you attend a Keller Williams Family Reunion. 

The Family Reunion is THE place to go if you want to learn from a diverse community of global real estate pros with invaluable insight into overcoming industry challenges and obtaining an edge in an intensely competitive space. 

That’s why I’m so excited to share everything I learned at this year’s event with you!

Home sales are coming back, but slowly

To the surprise of no one, home sales fell off a cliff in 2023 (down 33% from 2021 and 18% from 2022) due to a combination of economic uncertainty and interest rates in the 5% to 8% range. 

Only 4.1 million homes were sold in 2023—the last time sales volume was that low was 2008, when the world was in the grips of a massive recession (and the time before that was 1995-96). 

So, yes, people pulled back on selling homes last year, but it’s not like they stopped selling altogether—there were still more than four million homes sold in this country! That is a remarkable amount of transactions even though it might not feel like it. 

There are still plenty of sellers and plenty of buyers, just not as many as there were during 2019, 2020, and 2021 when historically low interest rates pushed transaction volume artificially high.

That being said, sales volume won’t increase this year by much. Analysts at Keller Williams only anticipate a 5% uptick in sales during 2024 due to the Federal Reserve maintaining the current interest rate environment.

Home prices are really, really resilient

In 2023, the annual median home price in the US was 34% higher than it was in 2020—that’s the bad news. 

The good news (if you can call it that) is that experts project that the median price will only increase by 2% in 2024, providing prospective buyers with—if not a screaming deal—some stability at the minimum. 

Looking in the rearview mirror a bit, single-family homes have appreciated at 4% year-over-year going all the way back to 1989. While you shouldn’t expect price appreciation to go negative like it did from 2007 to 2009, we’re definitely entering a cooling-off period that’s going to extend throughout 2024 and probably into 2025 and 2026.

During this period, prices will inch upward, but below the 4% average annual appreciation rate. Until the Federal Reserve meaningfully cuts interest rates or a great deal of housing supply comes online, there’s still plenty of demand to meet the available supply of homes for sale, which will keep prices elevated.

Inventory is on the struggle bus

We touched on it every so briefly in the previous section, but the housing supply remains tight. That tightness is keeping prices higher than they might otherwise be under normal market conditions. 

While we haven’t seen a balanced market (i.e. six months of housing inventory) since 2012, what’s hurting buyers is how far below a balanced market we’ve fallen. There hasn’t been more  than five months of inventory since 2015 (5.2 months) and there hasn’t been four months of inventory since 2018 (4 months). 

And since COVID?—Well, we’ve averaged a measly 2.8 months of inventory supply. 

In other words, for the last four years sellable inventory has been more than 50% below where it needs to be for a healthy, balanced market. 

That is great news for sellers looking to cash in on the equity they’ve built in their homes, but it’s crushing news for buyers (especially first-time buyers) who want to shop around in a vibrant (rather than cutthroat) market. 

Fortunately, inventory is inching up as people adjust to a higher-rate environment and more new construction comes online. Some experts (including the chief economist at the National Association of Realtors) predict that housing inventory will jump by 30% in 2024 (3.1 months to 4 months), which would be AMAZING news for buyers. 

Such an increase would provide the market with its highest inventory volume in the better part of a decade.

Mortgage rates remain low if you use a historical lens

Mortgage rates are high, coming in at 6.81% to close out 2023. 

That being said, they’re below their historical average (7.74%) going back to 1972.

For those uninterested in accounting for the Paul Volcker years, today’s rates are (roughly speaking) in line with the historical average (5.98%) going back to 1990.  

The painful truth is we all got way too used to stupidly low interest rates in the wake of the Great Recession. To stimulate the economy and fuel growth, the Federal Reserve engaged in massive amounts of quantitative easing from about 2008 to 2014. With so much cheap money floating around the economy, we didn’t see mortgage rates in excess of 5% for more than a decade. 

In fact, from 2012 to 2021 the average 30-year fixed-rate average was a laughable 3.96%, more than 33% below the ‘90-’23 historical average and 49% below the ‘72-’23 historical average. 

While rates are going to come down slightly in 2024, I would anticipate seeing rates in the 4% to 4.5% range until the end of 2025.

Affordability is non-existent

To no one’s surprise, homes are unaffordable for many people right now. Principle and interest payments were 32% of income on average in 2023—up from 18% in 2020.

The truth is, homes haven’t been this unaffordable (32% P&I as % of income) since 2006 when the market was driven into a bubble-like frenzy due to irresponsible lending practices that enabled unqualified buyers to purchase multiple homes without putting any money down and borrowing capital via volatile adjustable rate loans. 

The only time single-family homes were more unaffordable in the last 50 years was during the 1980s when Federal Reserve Chairman Paul Volcker was in the middle of his quest to crush surging inflation (49% P&I as % of income). 

But unlike the unaffordability of the 1980s or early aughts, there’s no end in sight for elevated housing costs because, simply put, the imbalance between supply and demand is so high. 

The only way out of this affordability mess is through new construction, but between soaring building costs (lumber, labor, etc.), monumental layers of red tape (environmental impact reports, zoning laws, etc.), and builder caution due to the painful lessons learned following 2008, homes aren’t being built in the volume they’re needed. 

And don’t expect any supply relief from defaults either. Unlike the fallout from the Great Recession when +4% of residential property owners fell delinquent on their loans every year from 2008 and 2012 (peaking with an astounding 8.55% in 2010), less than 1% of current owners are delinquent. 

The bottom line?—Get used to devoting a higher percentage (+30%) of your income to cover principal and interest on a mortgage if you want to buy a home in the next few years. 

In closing…

The news is somewhat grim for buyers—2024 and 2025 look like they’re going to be rough. But whereas 2020 and 2021 were rough due to crazy low rates fueling over-the-top demand, the next couple years will be rough because there just aren’t enough homes to sell. 

As we mentioned earlier, builders aren’t building enough. There were only 908,000 new single-family home starts in 2023. Not only is that below the long-term annual average of 1,000,000 new starts, but that shortfall is coming in an environment that’s already painfully low on supply. 

In the existing home market, people aren’t being forced to sell. Unemployment is low, only 1.8% of owners are underwater on their homes (well below the historical average of 6%), and only 2% of sales last year were distressed transactions. 

Additionally, the rise of remote work is crushing the number of people who need to relocate for their career which reduces transaction and, therefore, supply volumes. 

You can expect the buying conditions to be even tighter in popular coastal markets (e.g. Los Angeles) where more people want to live due to access to water, warmer weather, better job prospects, and an overall more comfortable lifestyle.

If anything I’ve shared in this month’s newsletter has you feeling worried or distraught, fear not—I am here to allay your fears! While the market for buyers might not be as cushy as it was in 2019, there’s still plenty to be positive about. The sooner you reach out to me with your comments, questions, and concerns, the sooner I can help you along your real estate journey.

So, with that said, give me a call at 310-853-0335 or shoot me an email at ShannonShue@KW.com. 

Talk soon!

-Shannon