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Zillow’s chief economist makes 2024 housing market resolutions

In a Dec. 27 article for Zillow, Chief Economist Skylar Olsen shares her wish list for a healthier housing market in 2024:

2023 was a challenging year for home buyers. Mortgage rates rose to 23-year highs and the inventory crunch meant prices continued to rise in much of the country and made it difficult for each buyer to find a home that met their needs.

I am hopeful that 2024 will be a breather year that kicks off a long healing process in the housing market — and in fact, the Zillow Research team predicted just that in our annual predictions.

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These are a few things on my wish list to help make that a reality: 

More homeowners decide to sell
A severe inventory crunch in 2023 kept home values rising, disappointing especially first-time buyers hoping for a break amid the slowdown. “Rate lock” — homeowners who locked in long-term mortgages when rates were near 3% being reluctant to sell and take on a new mortgage with a much higher rate — is a big reason why.

We have seen early signs that rate lock is easing. Compared to pre-pandemic norms, the deficit of new listings is shrinking. It’s important that this trend continues to bring the market better in balance.

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Build, build, build
The other way to get more homes on the market is with new construction. And in the long run adding to the housing stock through new construction is even more important than more inventory coming from existing homeowners because of the housing shortage.

Recent readings have shown reasons for optimism. I am hoping this momentum will continue into 2024.

Mortgage rates are held in check
Rising mortgage rates in 2022 and 2023 were perhaps the biggest reason for the housing market being stuck in neutral. A recent mortgage rate dip has sparked more activity.

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It’s unlikely rates will fall anywhere near the 3% range we saw in 2020 and 2021, at least without another economic crisis that we do not want and should not hope for. A continued, slow descent — or even rates holding more steady — in 2024 would be a welcome break after an unrelenting rise and unpredictability the past two years. Households need a chance to plan their finances.

Rent growth stays stable
U.S. rent growth has stabilized at just over 3% year over year, slightly less than the long-term average. Wild swings in rent growth over the course of the pandemic made it tough for renters to find stability and budget for their future, and higher costs have made it harder for renters trying to save for a down payment — it now takes the median household four years longer to save up a 10% down payment on a typical U.S. home.

Rent growth was also a major contributor to inflation. This more balanced, sustainable path for rent growth will do more than help renters save for a down payment or another life milestone — it would strengthen the Fed’s case to loosen monetary policy and cut interest rates.

A strong and sustainable job market
Amid a turbulent economy the past two years, the job market has held strong. Real wages, which fell in 2022 as inflation soared, grew in 2023. While job growth has slowed, it has not turned negative and the unemployment rate remains below 4%.

For housing affordability and household financial health to improve, it’s important that the job market holds its mild strength so the “soft landing” so often talked about can be achieved.

More ways for first-time buyers to build credit
Over the years, Zillow research has shown the importance of credit access and credit scores in the home buying process. Improving access to credit and making it easier to prove creditworthiness will allow more households to make the move into homeownership. We can’t control the macro economy, but we can build ever better marketplaces.

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