The 2024 First-Time Homebuyer Strategy Guide

The year ahead holds a mix of continuity and change for both the economy and the housing market. Amid modest economic growth, a slight increase in unemployment, and easing inflation, we’ll see a gradual decline in longer-term interest rates, including mortgage rates. This shift from rising to falling mortgage rates will improve housing affordability, even as it reduces the urgency once felt by homebuyers. Cooling housing demand, coupled with an abundance of rental options, is expected to stabilize home sales at relatively low levels, allowing home prices to decline slightly as the inventory of homes for sale dwindles.

Realtor.com® forecasts nuanced shifts in key housing indicators. Mortgage rates are expected to average 6.8% throughout the year, falling to 6.5% by year-end, compared to an average of 6.9% in 2023. Median existing-home price appreciation is expected to decline by 1.7%, in contrast to a slight increase last year. Existing-home sales are forecast to increase slightly by 0.1% to 4.07 million, maintaining the level observed in 2023 but representing a sharp drop from the 5.03 million sales in 2022. The inventory of existing homes for sale is projected to decline 14.0% year-over-year, exacerbating the challenge of limited housing supply.

Despite a brief period of price relief, the cost of buying a home with a mortgage has remained high. As of October 2023, it will take 39 percent of median household income to purchase a typical home. This is well above the historical average of about 21 percent. Expected house price corrections, along with declining mortgage rates and income growth, will improve the affordability ratio to an average of 34.9 percent in 2024, with the figure expected to fall below 30 percent by the end of the year.

After peaking during the pandemic, existing home sales faced downward pressure from rising mortgage rates. The drop in rates in early 2023 temporarily revived sales, but the subsequent rise in rates dampened that momentum. With a significant number of households having purchased homes in recent years, the inclination to sell remains low, largely due to satisfaction with current homes and concerns about losing low-rate mortgages. Sales in 2023 are expected to mirror the 4 million mark set in 2022, with similar expectations for 2024, despite easing mortgage rates.

As we delve into the realities of 2024, first-time homebuyers face the daunting challenge of high housing costs. Despite a slight improvement, monthly financing costs for the purchase of a typical home are expected to hover just below the $2,200 mark, consuming nearly 35% of the average household income. While this scenario is a test, it signals a gradual shift toward conditions that may begin to favor buyers more. To navigate this landscape, individuals looking to purchase their first home should prioritize comprehensive financial planning. This includes a deep dive into the various mortgage options available in the market, as well as a thorough understanding of down payment assistance programs. Such preparatory steps are critical to effectively navigating the complexities of today’s housing market.

The road ahead for first-time homebuyers in 2024 is filled with both hurdles and promise. The dynamic interplay between housing affordability, prevailing economic conditions, and broader market dynamics creates a scenario that is both complex and nuanced. High housing prices, compounded by the economic factors at play, pose a significant challenge. However, amidst these challenges lie opportunities for those who are diligently prepared. Understanding current trends, utilizing a variety of resources, and taking a strategic approach to homeownership can empower buyers. By doing so, individuals can confidently navigate the complexities of the market and make informed decisions that align with their financial capabilities and housing needs. In essence, understanding the landscape, coupled with proactive preparation and resource utilization, positions first-time homebuyers for a more successful and fulfilling homebuying journey in the year ahead.