As we enter 2024, the housing market in the U.S. is undergoing a significant shift. Against a backdrop of modest economic growth and slightly higher unemployment, mortgage rates are beginning to retreat from their highs, changing the cost-benefit analysis of buying versus renting a home. In 2024, mortgage rates are forecast to average 6.8%, with a year-end rate of 6.5%, compared to an average of 6.9% and a year-end rate of 7.4% in 2023. However, this trend is not creating a rush to buy homes. Instead, a relatively stable level of home sales and a slight adjustment in home prices is expected as the number of homes for sale continues to decline.
Cooling Rental Market Trends
This shift toward renting is highlighted by the cooling rental market. After a period of double-digit rent growth between mid-2021 and mid-2022, the rental market has begun to stabilize, with a slight annual decline in median asking rent of -0.2% expected in 2024. The rental market is being driven by the supply of new multifamily units, with the annual pace of new multifamily completions reaching 385,000 units in the third quarter of 2023. Despite this increase in supply, the median asking rent is expected to fall only slightly below its 2023 level in 2024, maintaining renting as a more budget-friendly option than buying in most markets.
Challenges for First-Time Homebuyers
The market remains challenging for first-time homebuyers. In 2023, the monthly cost of financing a typical for-sale home will average over $2,240, or nearly 37% of the typical household income. This is expected to fall to just under $2,200 in 2024, still nearly 35% of income. This financial burden is particularly pronounced among younger demographics, who find the barriers to homeownership increasingly insurmountable. As a result, they are more likely to remain in the rental market for longer periods of time.
Growth Opportunities for Proptech and Investors
In response to these trends, proptech companies are finding fertile ground for innovation, particularly in streamlining the rental process and managing properties more efficiently. Investors also see opportunities for higher returns on rental investments, given the robust demand for rental properties.
Market Adaptations and Future Outlook
Developers, real estate agents, urban planners and local governments are adapting to these changes by focusing more on building rental units and adjusting housing policies to meet the growing demand for rental housing.
In summary, the U.S. real estate market in 2024 is tilting toward rentals, driven by rising mortgage rates and a challenging environment for first-time homebuyers. This evolving landscape presents significant opportunities for proptech companies and investors, but also requires other market participants to adapt. Despite challenges in ensuring an adequate supply of quality rental properties, the trend toward renting is likely to drive the real estate narrative for years to come.