2024 started as a promising year for the real estate industry, considering the dull market in 2023, though many obstacles continue. The high mortgage rates, home prices, and conventionally low housing stock persist, putting homeownership out of reach for many first-time buyers. According to financial research published by the Federal Reserve Bank of St. Louis, the homeownership pace in the U.S. in the first quarter of 2023 was 66%, and by the last quarter, it dropped a little to 65.7%. In this article we will discuss our real estate forecast for 2024 and what investors can expect going forward.
Importance of Real Estate Forecasting
As a real estate investor, you need to keenly monitor the real estate cycle, both on macroeconomic and microeconomic scales, to understand present-day trends. The housing market process is linked to the general economy. Nevertheless, you can't consider that the housing market is doing well just because the commercial property market has remained strong or that the general economy is good.
Real estate cycles are highly subtle. However, the great news is that you can discover success as an investor whatever stage of the real estate market cycle you are in. The following four phases can help you understand the real estate markets.
Recovery: It is the lowest phase, with no new construction, dormant rental growth, low occupancy, and apathetic demand for housing. However, as an investor, you must be alert and use the opportunity to sell obsolete properties in financial despair.
Expansion: During this phase, the situation looks promising, with the economy growing. The demand for housing will increase, and it could be the ideal time for sellers to dispose of their properties at a profit.
Hyper Supply: Developers and investors get occupied during the second expansion phase to ensure that real estate supply meets growing demand. However, due to the transition in the economy, supply will soon exceed demand. It might be the right time for buyers/investors to buy and hold.
Recession: The last phase will see supply exceeding demand by a wide margin and with minimal rental growth chances. However, a recession provides an excellent opportunity for investors to purchase properties with significant savings.
Factors Affecting the Real Estate Market Cycles
The following factors are some of the main contributors to the effect on the real estate cycle.
Demographics: The aging population is one of the most influential demographic shifts. With advancements in healthcare and increased life expectancy, the number of older adults proliferates. This shift has implications for retail sales projections, as older consumers tend to have different purchasing routines and choices than younger generations.
Interest rates: Interest rates significantly impact probable homebuyers' buying power. When interest rates are high, it could serve as a barrier for many would-be buyers from purchasing. Contrarily, when interest rates are low, it could encourage a spurt in home-buying movement, as the long-term cost of funding a home is cheaper.
General economy: The overall health indicates the housing market cycle. Generally, consumers feel more encouraged to buy residential real estate when the economy is doing well or progressing. They think their investment will yield since their property's value will continue increasing.
Government approaches: The Government occasionally intervenes with policies to help boost a particularly sluggish market or during a prolonged recession. It can decide to manage tax deductions, grants, tax credits, and various homebuyer schedules to incentivize consumers to purchase real estate.
Consumer confidence: Consumer confidence is merely the perspective they have of the economy, both in real-time and for the future. Acquisition deals and spending can grow higher when consumer confidence is high, and they will decrease when consumer confidence is low.
How Economic Factors Impact Real Estate Investments
The real estate sector has been under intense pressure as interest rates have risen over the past few years, and prices have dropped by 11 percent since the Federal Reserve started raising interest rates in March 2022, obliterating the gains of the previous two years.
Higher borrowing costs directly drain property prices by making acquisitions in the sector more costly, indirectly restricting financial activity and decreasing demand for such properties. Nevertheless, the sharp price decline during the current U.S. monetary policy tightening cycle is striking.
Real Estate Forecast 2024
The cost factor is the primary force driving real estate, bringing low-cost markets to the forefront. Zillow has identified Buffalo, New York, as the hottest housing market in 2024. It is followed by:
Cincinnati, OH
Columbus, OH
Indianapolis, IN
Providence, RI
Atlanta, GA
Charlotte, NC
Cleveland, OH
Orlando, FL
Tampa, FL
Zillow the 50 largest U.S. metro areas to forecast the most desirable or competitive housing markets in 2024. The research comprises expected home value appreciation from December 2023 through November 2024, the expected change in home value appreciation from 2023, new jobs per new housing unit approved, an assessment of the net new number of home-owning households founded on present demographic trends, and the pace at which homes are being sold.
Commercial Real Estate Outlook
Since the onset of the COVID-19 pandemic, the commercial real estate industry has taken a battering, and many of the ongoing challenges remain. 2023 was a year of transition with bloated interest rates, inflationary pressures, and a recessionary cycle, making it difficult for purchasers and sellers to agree on terms.
Office: The work-from-home concept that started during the pandemic has disrupted the office sector. Although numerous jobs have been created post-pandemic, offices are not the same as in previous years. Several workers are reluctant to join, resulting in offices wasting up to 50% of their space with empty tables/chairs.
Retail market: The pandemic saw online businesses mushrooming due to social distancing and lockdowns. Many small businesses closed their retail outlets. However, the higher-quality retail market is slowly recovering and growing their business.
Industrial: After major disorders during COVID lockdowns, the trucking and warehousing sectors have experienced a boom. Driven by strong consumer spending, competition in e-commerce, and relocating operations closer to home, industrial property owners enjoy excellent rent growth and full occupancy.
Trends in Residential Real Estate
The buying and selling of homes in the market may not fully bloom in the near future. High mortgage rates, increasing home prices, and low housing stock continue to put homeownership out of reach, especially for first-time buyers.
Families may have to accept the elevated home prices and mortgage rates to buy a home in the foreseeable future.
While U.S. home prices declined in December for the second consecutive month, home prices jumped 5% year-over-year.
Experts expect a slower rise in 2024 home prices, which will fluctuate regionally and depend strongly on local market supply.
Will the Housing Market Recover in 2024?
Two crucial factors influence a housing market recovery. One significant factor is an increase in the availability of homes for sale. This extra inventory will help ease the rising home prices, balancing them off or settling back somewhat from peak or near-peak levels.
The second factor is to ensure a reduction in mortgage rates. ,
When mortgage rates finally begin to fall, demand could surge, causing home prices to reverse.
Housing Inventory Forecast for 2024
With many homeowners fixed at low interest rates or hesitant to sell due to high home prices, demand continues to outpace housing reserves, and this trend will continue for a while.
The Role of Technology and Innovation in the Future of Real Estate Investment
While most industries have adopted new technology, the real estate and construction sectors have dallied. However, this is being redirected due to the widespread digital revolution in the industry. Several real estate market sectors feel the impact of the increase in PropTech (Property Technology) businesses, including real estate app development and scaleups that use advanced technology. Technology focuses on enhancing the client-tenant experience throughout the property lifecycle and better understanding the property to make more profitable investment and management choices.
Advantages of PropTech in Real Estate:
Automating tasks like tenant screening, property listing management, maintenance tracking, and lease processing, PropTech can ensure minimal errors, saving time and more volume of transactions.
Real estate platform that equips professionals with user-friendly interfaces and automated workflows that streamline and accelerate tasks such as property listing management.
Agents can easily upload property listings, update information, and track inquiries through centralized databases and integrated systems, reducing manual data entry and streamlining the listing process.
Simplifying processes, minimizing wastage, and maximizing efficiency, PropTech lowers operational costs, enhances profitability, and keeps real estate businesses competitive in the rapidly growing real estate market.
Conclusion
The 2024 U.S. real estate market presents opportunities and challenges, with changing interest rates at the forefront of industry dynamics. Cruising these waters requires a subtle insight into economic trends, technological advancements, and regulatory shifts. Whether you are a consumer looking to buy a home, an investor, or an industry specialist, staying informed and agile will be vital to succeeding in this dynamic real estate environment. The ability to adapt to changing interest rates will set you up for success.