In 2024, Zillow economists predict home buyers will have more options and a bit more affordability breathing room — but only a bit — after the inventory crunch and mortgage rates rising to 20-year highs were this year’s headline news items.
Buying a home will remain expensive, keeping pressure on the rental market to cater to families that will be renting longer than previous generations typically were. Many of those who do buy will turn to homes that need some work, and do-it-yourself upgrades and repairs will keep new homeowners busy.
Here are Zillow’s predictions for the housing market in 2024:
More homes will hit the market as homeowners accept that mortgage rates aren’t falling any time soon
“Higher for longer” is the key refrain regarding mortgage rates looking ahead to the next year in housing. It’s becoming clear that high mortgage rates have some staying power. Expect more homeowners who locked in long-term payments when rates were near all-time lows to list their homes for sale, as they grow weary of waiting for the historically low rates of 2021 to return.
A stubbornly small pool of homes for sale has kept competition fairly high for most of this year, even with high costs limiting the number of active buyers. With mortgage rates rising over the past two years, homeowners have been reluctant to sell, opting instead to hold onto the ultralow interest rate on their current mortgage. Many of those homeowners will have their eye on a home with a bigger (or no) backyard, an extra (or fewer) bedroom, or in their preferred neighborhood across town, and Zillow predicts more of these homeowners will end their holdout for lower rates and go ahead with those moves.
More homes on the market — even the gradual increase Zillow economists expect — would be good news for home buyers, spreading demand and easing upward pressure on prices.
Home buying costs will level off, giving hopeful buyers a chance to catch up
A typical home buyer in October would have spent more than 40% of their earnings on their mortgage payment — an all-time high in Zillow data, which stretches back to the 1990s. While affordability will undoubtedly remain the top concern for potential home buyers in 2024, there is reason to expect those challenges to ease just a bit.
Zillow’s latest forecast calls for home values to hold steady in 2024, falling 0.2%. Predicting how mortgage rates will move is a nearly impossible task, but recent inflation news gives the impression that rates are likely to hold fairly steady as well in the coming months. Taken together, the cost of buying a home looks to be on track to level off next year, with the possibility of costs falling if mortgage rates do.
That would give time for wages and buyers’ savings to catch back up — welcome news after the rapid rise in housing costs over the past two years. Wage growth has held strong, meaning the share of income spent on a mortgage will fall next year even if costs remain the same.
The new starter home will be a single-family rental
Though some improvement for home buying affordability is expected in 2024, many households will continue to be priced out. Demand — and prices — for single-family rentals will continue to increase next year as families look for a more affordable option to enjoy amenities like a private backyard or a home that doesn’t share walls with neighbors.
One possible path to more single-family rental inventory is homeowners deciding to turn their home into an investment property and rent it out rather than selling it when they move. The ultralow mortgage rates held by many existing homeowners make it more likely that this option would pencil out.
More markets will follow New York City’s lead with rental demand surging near downtowns
Throughout much of the pandemic, and even before, suburban rent prices were growing faster than rents in urban neighborhoods. [1] While the gap has narrowed, suburban rents continue to outpace urban rents in most major markets, specifically, 33 of the 50 largest metro areas. [2]
In New York City, data from StreetEasy, Zillow Group’s New York City real estate marketplace, shows demand is surging for rentals in commutable areas with easy access to Downtown or Midtown Manhattan, while areas farther from these office-laden neighborhoods are seeing relatively less demand. StreetEasy experts predict a strong year for Manhattan demand in 2024, and Zillow foresees more markets following suit, with rental demand surging near downtown centers.
Renters looking for a place near downtown will likely have more options with this year’s multi-family-construction boom, which means a huge number of new homes have hit the market. More options for renters looking for a new place means landlords who are trying to attract tenants have more reason to compete with each other on price. That’s a key reason more rental listings are offering concessions.
Traditional home buyers will compete with home flippers for homes that need a little TLC
Typically the target of home flippers, homes that need a little work before they qualify for “dream home” status will have increased interest from buyers shopping for their primary residence.
Inventory has been far below normal for a while, and though Zillow predicts more homes will hit the market in 2024, inventory will remain much lower than pre-pandemic norms. Faced with limited choices, buyers will be willing to overlook small flaws, such as an outdated bathroom or kitchen.
The higher cost of buying a home today makes a flip harder to pencil out, so buyers may face less competition from flippers than they might have in previous years. Even with less chance of being subject to a bidding war, these homes won’t come cheap, so expect buyers to frequent their local hardware stores as they work on DIY home improvements. If Zillow’s 2024 home trends to watch are any indication, expect brutalist-inspired features and sensory gardens to be on home improvement to-do lists, but not “cloffices” or Tuscan kitchen designs.
Artificial intelligence will enhance the home search experience
Generative AI made waves this year, and Zillow expects AI advancements to streamline the home-shopping and home-selling journey in 2024, improving the experience of buyers, sellers and their agents.
Zillow tech experts expect a variety of new tools and technologies designed for real estate agents next year, allowing them more time to connect with more clients and prioritize face-to-face interactions. Agents have been using AI to assist with writing listing descriptions and to create 3D content for their listings. Next year’s advancements are expected to have an emphasis on visual and multimodal capabilities, including more rich media content.
Expect home shoppers to benefit from generative-AI-powered experiences to glean valuable insights and guidance on home financing.
[1] According to Zillow Observed Rent Index data at the ZIP code level. ZIP codes were classified as urban, suburban or rural, and month-over-month and year-over-year changes were then aggregated nationally and across metro areas for each classification; those changes were then averaged.
[2] Year-over-year changes, as of October 2023.
Michele and I cruise around twice a week looking at the new listings.
I love it because I get to pontificate about the business and give her guidance like a good broker should.
She asks many great questions, and today was no exception. She had read the blog post from 2009 where I said agents should know the hot buys. She asked about the definition of a hot buy.
Today there is an easy formula to identify a hot buy:
If the number of Zillow Saves is 5% or more of the Zillow Views, it is a hot buy.
If the Zillow Saves are 7% to 10% of the Zillow Views, grab your checkbook – because it is sizzling hot.
Of course, now that I’ve divulged my tip, a few agents will manipulate the counts so if the listing agent is a known scumbag, then don’t trust their counts. You know who the scumbags are, don’t you?
We came up with another idea too.
If the house is one-story, newer, and the price is attractive, it’s a hot buy. But then we went one better.
If the house has two of the three (one-story, newer, attractive price), it’s probably a hot buy anyway.
If the list price is attractive, that is enough to power any sale, but if the price is attractive and the house is either one-story or newer it will probably be a hot buy. In 2024, a newer one-story house doesn’t even need to have an attractive price – there are so few of them that they can ask anything they want.
We saw three houses for sale today that will demonstrate my theorem. All are one-story homes that have been improved and should appeal to the maximum number of buyers – especially the seniors who have the money and will only consider a renovated one-story in a good location with some view:
For those who desire a full ocean view from both the family room AND the primary suite and can live with 1,620sf built in 1986 on a smaller lot in Carmel Valley, you can’t do much better than this for $2M:
If you want a fully-renovated one-story house just east of the freeway in Solana Beach that overlooks the golf course, then this would be worth a look:
Want to step it up and buy a brand-new 4,194sf one-story house with ADU in a prime Del Mar location with ocean view – and price is no object? Then this is for you, priced at $16,995,000:
Why would these three list for sale now instead of waiting until next year? Well, I can’t help you with that. It is the most lucrative time ever for buyers to pause during the absolute peak wait-and-see period of all-time.
So if 1-2 of these go pending by the end of the year, it will show that the premium properties are always hot – and I wouldn’t be surprised if they all sell.
Ok, ok – yesterday I said that we’re at the highest pricing ever, but the San Diego non-seasonally-adjusted Case-Shiller Index isn’t quite there yet.
But it feels like record pricing around the north county coastal region, doesn’t it?
The index dropped eight months in a row last year, and it might track negatively over the next few readings of 2023 – big whoop. The index gave back 11% last year, and we’ve regained all but 2% of it this year. It is a seasonal event that will probably repeat in the coming years.
If the pricing keeps trending upward in 2024, at least it should be somewhat offset by lower mortgage rates this time. The quick rise in rates in the middle to late 2022 had to be reflected in the pricing, which it was. But this year, pricing held up nicely in spite of touching 8% rates recently.
I’m predicting an increase in listings next year, and it could amount to a full-blown surge. I already have three listings lined up for early-2024, which has never happened this early – there have been years where I get well into January without sniffing a new listing!
I’ll survey my fellow agents over the next couple of weeks to see what they say – two have already agreed!
Hopefully NAR is busy in settlement talks right now, because they just don’t seem to get it, or they have trouble putting it on paper. These are their latest explanations:
However, there might be hope for settling the case:
Regarding the possibility of a settlement in the case, Katie Johnson, NAR’s chief legal officer said, “For NAR, settlement has always been an option.”
If NAR were to settle it would look for two outcomes, according to Johnson:
1. That homebuyers will continue to be able to access and afford buyer representation, and
2. That all liability from the suit’s claims is eliminated for NAR’s members, associations and MLSs.
“Settlements are always an option if we can achieve those objectives,” Johnson said.
Lesley Muchow, the NAR Deputy General Counsel & Vice President of Legal Affairs and Antitrust Compliance also advised agents to stress that commissions are negotiable. In that vein, she urged NAR members to leave compensation fields blank on forms rather than pre-filling them out — a phenomenon multiple plaintiffs emphasized in their testimony during the Sitzer | Burnett trial.
“Those are conversations you need to have with the consumer,” Muchow said.
“There’s no set amount. Sellers can decide and it’s on the Realtor to educate the seller as to why they might want to elect to make an offer of compensation and how that will work to their benefit in the transaction.”
“A Realtor should never suggest to a seller that if they do not make a certain amount of an offer of compensation that other Realtors will steer buyers away from their property,” she added.
Johnson ended by stressing that NAR’s current legal situation represents an opportunity.
“An opportunity to differentiate yourself from others – from your competitors and colleagues in your area – and an opportunity to improve your practices. An opportunity to think creatively and do things differently, using this delta, this point in time, as a launch pad for innovation.”
Zillow CEO Rich Barton weighed in on the bombshell cases in both an investor call and a shareholder letter. Barton’s key comment came early in the call when he said “We also believe complete disruption to the existence of buyer’s agents is improbable for a few reasons.”
Barton reaffirmed his support for buyer agents and the theme of buyers having their own representation. “We believe a well-lit game is cleaner and more equitable. People deserve and need independent representation,” Barton said. “We’ve seen double-siding in the industry, which is clearly a conflict and is at certain times more expensive to the transaction.”
Damien Eales, CEO of Realtor.com said, “I don’t think that from a consumer perspective, they are paying a great deal of attention to what is occurring more broadly in the industry. And as much as these court cases play out, I think it will be in some respects very much confined to the industry conversation as opposed to the consumer conversation.”
During his own investor call, Compass CEO Robert Reffkin pointed to the Seattle region, where sellers have not been required to offer buyers’ agent commissions for several years. Despite that change, Reffkin said, commissions in the area remain in line with the rest of the country — an outcome that suggests the bombshell lawsuits may not radically upend the status quo.
“I don’t think there’s any evidence to suggest that there will be pressure on commissions,” Reffkin said.
The history of steady commission rates will be mentioned in the lawsuit appeals.
Doesn’t the history suggest a conspiracy? Especially when combined with the ascent of home prices? Lawyers for the plaintiffs will note that the annual home appreciation gives the appearance of realtors getting a raise in income every year – including +40% since 2020.
There is no conspiracy on the street. It’s too competitive between agents!
Any pressure on commission rates will come from agents who are desperate to eat. The perfect storm of market conditions should push hundreds of thousands of agents out of the business. As they exit, they might give a seller a deal – if they can find a listing opportunity.
What do sellers and buyers want – the best rate, or the best agent? It’s one or the other.
Hopefully this mess will cause consumers to thoroughly investigate the choices. Otherwise, this will all blow over in a few months – unless the Department of Justice does something permanent.
First, let’s identify how realtors get their business.
Either they earn the business (#1&2 above), or they buy the business (#3 above).
They earn it by creating relationships with friends and family that turn into sales. Those results create word-of-mouth endorsements that will hopefully be the foundation of the realtor’s business.
Or agents can buy the business through advertising.
There are several realtors in our area who spend $25,000 to $50,000 per month on advertising, which means they need to charge the higher commission rates – and that probably won’t change.
Billboards, bus benches, trailers in movie theaters, grocery store carts, etc. all lathered with realtor advertising that supplement their online ads, social media, and mailers to the neighborhood. These realtors hope to subconsciously create a positive image in the homeowners’ minds, which causes them to reach out to the ‘local expert’ when the time comes.
Which realtor will help you the most, and be deserving of their pay?
The best part of the realtor lawsuits is that they might cause consumers to investigate the choices more thoroughly. It is a daunting task because of the number of realtors out there, and the lack of hiring knowledge available. It’s why 80% of consumers hire the first agent they meet – they haven’t moved in a while, and in the microwave society they just want to grab an agent and go. Plus, the realtor industry provides virtually no guidance on the selection process, so you’re on your own.
My General Tips:
Those who spend the big money are vunerable to investigations – they hope that you grab and go instead. Once a team gets to 10 people or more, you have to wonder who is doing the heavy lifting. There are many top producers now in North County who have retired – but you wouldn’t know it because they leave everything in place, and just let the assistants run the machine. See if you can get the team leader on the phone, and check their reviews on Google and Zillow to see which agent is being acknowledged for the work. It’s not a bad thing to work with the assistants, but you’d like to know that up front.
The bigger the team, the less personal attention you will get. Their expertise will hopefully make up for it, but you should know that if your sale doesn’t work out, it’s not going to change their lifestyle.
Realtor websites look the same – brags about their sales, a button to search for your ‘dream’ home, and another for a computerized value of your home. With both buttons, you give up your contact information so they can pester you. Do they provide any helpful content on their website or social media? Their published content is a direct reflection of their expertise, and awareness of current market conditions.
Are they too busy for you? Simple way to find out. Call their phone number, and see what happens.
Every agent has their sales history on Zillow (whether they like it or not, because Zillow auto-loads them). If you are looking to conduct a full analysis, you’ll have fun with this data. One sale per month is a good sign, and check their mix of buyers and sellers, mix of price points, the SP:LP ratio on their sold listings, their listing presentations (quantity/quality of photos) and days on market. It’s takes work, but time well spent.
Do you want to hire the local expert? Rarely do they go into detail on what that means for you, and besides, every agent calls themselves the local expert.
Do you want to hire a long-time veteran? Only if they are still on their game (minimum one sale per month, etc.). More than half of all realtors are 60+ years old, and you don’t want to be their last sale.
Are they available? Deals are being done 24/7, so how the agent handles that is important.
Can they put a few sentences together to describe the current market conditions? It means you have to talk to them live, but it’s a terrific way to judge a realtor’s competency.
My big hope is that the realtor lawsuits give consumers the idea that they should shop around more, and they search for the best combination of quality realtor and commission rate. My guess is that the commission rates won’t change much, and they sure won’t be advertised. It should mean more scrutiny on what a realtor does for you – which is a great thing, and how the decision should be made!
A simple analogy for realtor commissions is a long-distance flight abroad.
Someone who was booking a flight from San Diego to Phoenix probably wouldn’t be too concerned about the quality. Because the flight only takes an hour, most can endure the inconveniences…..mostly due to the generally lousy service we get in every industry. We’ve become accustomed to not expecting much.
But when it comes to a long-distance flight, we might look harder at the differences.
Buying or selling a higher-end home is like flying to Australia.
A non-stop flight from LAX to Sydney, Australia is 15.5 hours, which should make people think harder about the choices. Not only does the airline, the staff, the type of airplane, the quality of the food, reviews, etc. get more scrutiny, but so does the seating chart.
Sitting in the economy section can be endured for an hour on a flight to Phoenix, but will you put up with screaming kids, the barking dog, and the guy who fills up more of his share of the seat for 15.5 hours?
Or do you deserve first class?
The problem with realtor commissions is that the agents all get paid the same, regardless of the quality of service provided. It’s as if everybuyer and seller pays for a first-class seat, but then only 10% to 20% of them get that level of service. It’s why there are so many complaints about realtors not being worth it – most don’t live up to the expectations, or their fee.
The commission lawsuits intend to change that, and they think they will cause the rates to go down.
But realtors intend to convince you that they are worth the usual fee by improving their presentations. The consumers who are willing to investigate will probably find something like this:
The exceptional realtors probably aren’t too interested in lowering their fee, so let’s examine the hiring of a realtor in the post-lawsuit era. Note that after years of using a pixel phone, I have finally switched to the iphone15promax – my first video with the new phone will start the inquiry:
