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Housing Market Predictions | 2024

Are you freaked out about what this next year looks like for the housing market? I’m sure that you have seen new stories cluttering your pages either trying to paint a dismal picture of the future or others that are telling you that everything is daisies and sunshine. 

Well I am here to set the record straight and give you true, local predictions for the Twin Cities housing market. No crazy fear tactics. No smoke up your bum. Just info. 

In this blog, I will be tackling your most asked questions about the market, covering everything from home prices & mortgage interest rates to the impact of the election year. 

 

Before we get into the nitty gritty, I do want to mention that I obviously can’t predict the future. If I could, I would be out buying winning lottery tickets and living on a boat somewhere. The predictions in this video are supported by local data, historical trends, and my active experience of practicing real estate in the Twin Cities Region.  

 

Home Prices

Over the course of 2023, prices grew to a median of $364,000 across the Twin Cities Metro. This was a 1.1% increase year over year, which was a much needed slow down from the steep home price increases of the last three years. Between 2019 and 2023 the annual average home price increased 30.6%. That is an $85,000 difference.

So you probably have two questions after seeing this. 

  1. Why the heck did prices jump so quickly over the last couple of years? Is that normal?

  2. Why did we see a sudden slow down?

After the pandemic hit in 2020 the federal reserve was doing anything in its power to keep the economy alive. This is when we saw mortgage rates drop to between 2%-3%. And guess what happened...the market blew up. This is when we saw insane competition in the market. Properties were receiving 10-15 offers and buyers were doing whatever it took to win, including waiving their home inspections. 

However below you can see that the average annual increase in home prices, prior to 2019 was 6.9% per year. So granted we were well above the average increase year to year since 2019, but homes have steadily been increasing in price ever since 2012.

 

So why did we see this pricing slow down so quickly? Again we go back to the Federal Reserve. Because lowering rates worked so well when they needed the market to pick up, they had to do the exact opposite to slow everything back down in response to inflation. And guess what.... it worked again. This is why we only saw that 1.1% increase in the annual average price. 

Ok so it’s all fine and dandy to see the pricing history but you are here to see where I expect prices to go moving forward. In 2024, I anticipate to still see an annual increase in pricing, more than we saw from 2022 to 2023 but less than the historical average. We should see an increase of 2 to 3% in the annual average price.

 

Inventory 

Now a big part of the reason why I expect home prices to increase rather than stay at a plateau, is the overall supply of inventory. Because at its core, the real estate market is impacted by the supply and demand balance. Here you can see that since 2020, our inventory has been at extreme lows. And I am not expecting this issue to go away anytime soon. 

The latest generation report for Minnesota shows that millennials make up the largest part of our population, which is a huge demographic at prime home buying age. The national median age to purchase a first home was 35 years old in 2023- right in the middle of the millennial generation group. 

This stacks with the fact that new construction just hasn’t been able to keep up the pace with buyer demand. Here you can see that since the great recession, builders just don’t flood the market with inventory anymore. 

So if we can’t rely on new construction to balance out demand, we would have to rely on previously owned homes. However, we are going to keep seeing low inventory in this category as well because of what we call the “lock in effect.” Earlier I mentioned that the Federal Reserve dropped interest rates down to 2-3% to combat economic slow downs that we were experiencing from the pandemic. During this time, if you already owned a home you most likely refinanced your 30 year mortgage to these historically low rates. Many people are going to be willing to stay longer in a home that no longer fully fits their needs simply because of the affordability and interest payments. They are “locked in” to a home with their new mortgage rates.

 

Interest Rate Projections

The other reason why I expect home prices to increase again in 2024 is because of interest rate projections. Over the last year, buyers were forced to adapt to a new normal in interest rates as we edged closer to that 8% mark, a range that we hadn’t experienced since 2000. Sources in the Wall Street Journal show that professionals & economists project interest rates to be in the mid- 6% range through 2024.

Now don’t get me wrong, it isn’t fun paying the higher interest rates but we can’t go back in time and buyers are more comfortable competing within this interest rate range. If we were slip below that 5% mark in 2024, I would expect a very similar market response that we saw in 2020 and 2021 to the 2-3% interest rates with new home buyers and competition. I don’t believe the Federal Reserve will be too eager to cut rates too quickly for fears of washing away the progress that they have made with inflation over the last year and a half. 

 

Impact of Election Years...

There are people who swear interest rates go down in election years but believe it or not, election cycles actually have very little impact on sales prices and interest rates. Here you can see that since 2005, our election years, which are in green, follow the same typical trends that we experience in non-election years.

That also goes for interest rates. This chart shows the average interest rates in the US, with the election years also in green.

 

So there you have it… My predictions for the 2024 market!

  1. 2-3% increase in home sales prices

  2. Interest rates to over between 6%-6.5%

  3. VERY limited inventory, which will keep us firmly in a sellers market.

 

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