Real Estate: Zillow Says Buyers Will Have More 'Financial Breathing Space' in 2024

The housing market has experienced ups and downs over the past few years. For many buyers, buying a home has become very expensive. Zillow reported that mortgage interest rates are currently at a 20-year high.

Fortunately, Zillow also said cities buyers should see "a little more financial breathing room in 2024" in terms of the number of homes available for sale, lower home prices, and more rental reviews.

5 reasons the housing market for 2024 will be more convenient for buyers

Skyler Olsen, Zillow's chief economist, explained, “I expect the beginning of a long healing process to begin in the housing market next year. We know there are a huge number of prime home buying age households waiting for the winds to turn in their favor. Although still presenting challenges, the market will be better for buyers, with more homes to choose from and an improving price."

She went on to say that while many will continue to rent, as demand for single-family rentals will be strong, recent shipments are expected to keep rent growth and easements high.

1. House purchase costs will be reduced, giving buyers a chance in the market

Zillow data showed that the typical home buyer in October 2023 would have spent a staggering 40% of their earnings on the mortgage payment, an all-time high not seen since the 90s.

Although affordability will no doubt remain a major concern for potential homebuyers in 2024, there is reason to expect these challenges to ease somewhat. Prices are likely to remain where they are for several more months, but the cost of buying a home in 2024 should drop as mortgage rates drop, at least a little. Lower rates will allow more people to have enough monthly budget to factor in the mortgage payment.

2. Artificial intelligence (AI) will change the way buyers search for homes

Although little known, Zillow has been leveraging artificial intelligence technologies since 2006 to create its "Zestimate" feature, which gives an estimate of what a home will sell for based on market trends and location. With the rise of generative AI tools in 2023, Zillow expects AI to play a large role in both the home shopping and home buying experience next year. In addition, artificial intelligence will also help agents and brokers create home listings and improve the way they communicate with buyers and sellers.

3. Land house rentals will be the new starting house

While home affordability is expected to improve in 2024, many will still be priced out. The data showed that the median renter is now 41 years old - up from 37 in 2000 - and it is likely that the types of rentals they are interested in have changed.

Another possibility that will drive this single-family rental trend is that homeowners may decide to turn their home into an investment property and rent it out, instead of selling it when they want to move. The reason? Current homeowners who were lucky enough to lock in extremely low mortgage rates before they skyrocketed don't want to sell and lose the convenient interest rate they have.

4. Traditional home buyers will compete with home upgraders for homes that need improvement

Home upgraders, those who purchase dilapidated homes that need a little (or a lot) of tender loving care before they can sell them to a new buyer, will have more opportunities in the market.

Slightly lower interest rates should increase the inventory of available homes on the market as buyer demand increases. This will lead to more house flipping and increased competition between flippers and buyers looking to purchase a home. Some buyers will be willing to overlook small blemishes, such as an outdated kitchen or bathroom, to secure a home.

5. Rental demand will increase near downtown areas like in New York

The epidemic led to a rise in rent prices in suburban areas, as many fled cities when lockdowns began. But now that the epidemic is over, the demand that moved from urban centers to the suburbs will return to the cities.

Additional data showed that there is pent-up demand for rentals in downtown areas. For example, demand for rentals in areas with many commuting options and easy access to downtown or midtown Manhattan is increasing. Meanwhile, areas further away from business-focused neighborhoods are starting to see slightly less demand. Some landlords even offer concessions to renters in urban areas to encourage them to keep moving there.