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.
You can get ahead of the curve on the hottest new home design trends by checking out our predictions of which features and design elements will be trending in 2024.
We looked at nearly 300 home features and design styles mentioned in for-sale listing descriptions on Zillow and then identified the keywords showing up more frequently than they did a year ago. From post-pandemic pastimes to nostalgic designs from decades past, Zillow identified the emerging trends of 2024:
The copycat lawsuits are pouring in now, with attorneys from across the country looking to get their piece. The latest, called Batton 2 (other versions were filed previously), is for buyers from the last 27 years:
“All persons who, since December 1, 1996 through the present, purchased in the Indirect Purchaser States residential real estate that was listed on an NAR MLS.” For this class, the plaintiffs are asking for damages under “antitrust, unfair competition, consumer protection, and unjust enrichment laws.”
The class will include millions of people! If NAR goes out of business (which is likely), it won’t change much because we’ll still have state and local associations. We’ll have less lobbying, but lower dues!
All plaintiffs have momentum now, and the lead attorney from the first lawsuit doesn’t just want money. “One of our goals in filing the case is to make sure any changes are brought nationwide,” said Ketchmark. “We’re extremely focused on making sure any change that comes from this is real change.”
But the NAR is taking it lightly, just like they have from the beginning:
“We are currently reviewing the new filing, and it appears to be a copycat lawsuit,” Mantill Williams, NAR’s vice president of communications. “We continue to assert that the practice of listing brokers making offers of compensation to buyer brokers is best for consumers. It gives the greatest number of buyers a chance to afford a home and professional representation, while also giving sellers access to the greatest number of buyers.”
Here’s our corporate viewpoint:
Compass spokesperson Devin Daly Huerta said the company doesn’t comment on pending litigation, but provided comments from the company’s earnings call on Monday, saying the company “will respond accordingly to the complaints filed against us at the appropriate time” and that the company feels “confident that Compass is well-positioned.”
Compass pointed to rule changes at Northwest MLS that made listing broker compensation to buyer brokers optional and didn’t result in any decrease of offers of compensation or the amounts offered. “So we have evidence in a major U.S. market of what this change might look like that gives us confidence,” the company said.
“Secondly, we believe we are positioned well because we have the combination of some of the most productive agents and the only end to end technology platform in our industry. Third, we currently have agents that successfully ask their buyers to sign buyer broker agreements in order to work with them. We are in the process of launching trainings to all of our agents to empower them to successfully get buyer broker agreements signed with their buyers.
“Lastly, we operate largely in the luxury segment, where we think buyers will always want the help of an advisor through their home-buying journey.”
Similar statements from other brokerages are downplaying the impact. Yes, we will probably have better presentations of what realtors do and why we are worth the money, but anyone who thinks that will fix everything will be sorely disappointed. Consumers will be empowered to consider other options.
The only people who think that buyer-agents are needed are the agents. Buyers find homes for sale online, and they are proud about finding them before their agent does. They wonder why they need their own agent, when they can just contact the listing agent. The listing agents will be enouraging those thoughts!
Here’s a paragraph from the red team – the first to publicly mimic my prediction:
But if buyers’ agents become less common, Redfin will prosper in that world too. We run the largest brokerage website in America. We’ve built self-service technology for buyers to set up their own tours and to make offers. We’ll use that technology to market the properties listed by our agents directly to consumers, taking market share from other brokerages. We may open that platform to other listing agents who work with us as partners.
This is an opportunity for major changes to be implemented on how homes are sold, and these lawsuits are the disruption device. Realtors will roll out fancier graphics that tout the status quo, leaving it wide open for new ideas. Zillow and Homes.com have surged ahead of what should have been the dominant search portal, realtor.com, which NAR also screwed up when they sold it to an outside company.
Zillow has been amassing the pieces to build a super app, and create one-stop shopping for homes. If they add an auction component, it will be O-V-E-R for realtors.
These are getting into the lazy zone now because predicting 2% to 4% increases over the next 12 months doesn’t take any real forecasting – they are just safe guesses based on historical norms which flew out the window with rising rates about 18 months ago.
They might end of being right, but at what cost? Plunging sales. To conduct real price discovery we would need a surge of new listings to test the demand, if any. Having 100 or so sales every month in an area of 300,000 people will keep prices elevated because that’s not much of a test – the market is just barely alive.
Paying referral fees is a standard practice in the realtor business.
Are you thinking of moving to a new town and need an introduction to a realtor there? Your agent here will track one down for you, and that agent will pay them a referral fee, which used to be 20% to 25% of the gross commission. The challenge? Getting good help!
Great agents don’t need any assistance with procuring new clients, and they might reluctantly pay a 20% or 25% referral fee only if the new client is motivated and in the upper regions, price-wise.
Less-experienced agents are willing to pay out higher referral fees, which doesn’t do the client any favors.
What we do is tough work, and fewer and fewer people want to do it.
It’s so hard to hire, train, and retain good/great agents now that many real estate companies are just resorting to referring clients, and taking a substantial referral fee instead.
Zillow has staff taking the incoming calls, and qualifying the leads before sending them to their Flex agents. Their referral fee is now 40% of the gross commission, AND they want buyers to use Zillow Home Loans too. Their Flex agents who send their buyers to ZHL will be rewarded with more leads, and vice versa:
Less than five percent of the U.S. real estate agent population works with Zillow (with far fewer Flex agents), and Zillow only touches around three percent of U.S. real estate transactions. They are running a small, exclusive ecosystem of agents that are willing to play by their rules, which now includes tight integration with Zillow Home Loans.
You’ve probably seen the TV ads by Homelight? The ones that pitch teaming you up with the best agents in town? Well, at least with the best agents who are willing to pay them a 30% cut of the gross commission.
Now Redfin is giving up on their agent-employee program, and they are testing the idea of hiring agents on commission splits, instead of salary and paying them “up to 75%”. It’s doubtful they will pay many of their agents the full 75% split. It’s just another way for them to get referral fees of 30% to 50%.
None of the referral fees are disclosed to the client, and it’s never discussed of how the size of the fee will impact the quality of the agent service you receive.
But most of all, any thought of commissions dropping will be fleeting at best. Commissions need to stay high in order to pay the larger referral fees!
At the beginning of 2023, the Zillow 1-year forecast for San Diego home values was -0.8%. In May, their expected 1-year appreciation rate in our local areas was around +3%.
Now they are guessing it will be around 5%….which might cause more sellers to wait longer!
SE Carlsbad – 92008
SE Carlsbad – 92009
NE Carlsbad – 92010
SW Carlsbad – 92011
Carmel Valley – 92130
Del Mar – 92014
Encinitas – 92024
La Jolla – 92037
Rancho Santa Fe – 92067
When is the best time to sell?
When no one else is.
When you have great comps (recent sales) around you.
At the beginning of 2023, the Zillow 1-year forecast for San Diego home values was -0.8%. In May, their expected 1-year appreciation rate in our local areas was around +3%.
Now they are guessing it will be around 4%….which might cause more sellers to wait longer!
SE Carlsbad – 92009
NE Carlsbad – 92010
SW Carlsbad – 92011
Carmel Valley – 92130
Del Mar – 92014
Encinitas – 92024
La Jolla – 92037
Rancho Santa Fe – 92067
When is the best time to sell?
When no one else is.
When you have great comps (recent sales) around you.
Zillow, Goldman Sachs, and every economist thought the 2023 market would be all negative.
But now….
Goldman Sachs originally forecasted home prices to fall by double digits. However, they have released a report titled – “As interest rates climb, the global housing market is surprisingly stable”. In it, they stated: “House prices [are] leveling out more quickly and at a higher level than would normally be expected given the rapid rise in mortgage rates. Home prices are defying expectations and RISING in major economies such as the U.S., Australia and Canada.”
Now Zillow is forecasting 3%-ish appreciation here for the next year – which sounds like the old normal:
We received three offers on our new listing, and all were around $2,000,000….well under the list price.
Once you get over $2,000,000, the buyers are putting up some fight.
If the only strategy is to take the best offer – by far the most popular realtor strategy – what do you do? Just select your favorite $2,000,000 agent with biggest down payment and shortest escrow? Or wait another week (or more) and hope there are two in the bush?
Those are the only two choices being employed all around the county. Home sellers have no idea how much money they are leaving on the table – and neither do the agents. It doesn’t occur to anybody that there is any other way to transact.
Spruce them up the best you can. Do the open-house extravaganza. Then counter ALL offerors for their highest-and-best…..and then tell everyone the current high price, and ask them to beat it. When faced with losing the house, buyers are much more likely to keep bidding.
I haven’t found any other agent who does it this way, but I hope they are out there.
I had the sellers agree to raise our list price to the agreed-upon sales price in order to send a message to the rest of the marketplace. I don’t want any of the other listings nearby to drop their price, and I want to be supportive to other buyers in general that the market is fine. Three of the La Costa Valley Six listings have gone pending in the last week!
One more note. When possible, I want to pick the winner on Day Four – it is the peak of the buyer urgency, and interest drops off quickly. Once a listing is more than a month old, buyers are going to lowball – why would you want to be in that predictament? Look how the views taper off:
When the saves are running around 5% of the total views, the online presentation is being well-received. Buyers must like the location, the photos, and the price to want to save another Zillow listing!
