2023 was not a good year for potential home buyers. Mortgage rates surged and hit a high of 7.79% in October. On December 13, 2023, policy makers kept the federal funds rate unchanged for a third straight meeting. The federal funds rate is the benchmark interest rate that financial institutions charge for overnight loans. The federal funds rate tends to indirectly influence mortgage rates. Although economists are optimistic that the Federal Reserve is done with its rate-hiking campaign to lower inflation due to the unchanged rate, affordability challenges will probably continue in 2024. Pent-up demand and low inventory will generally bolster prices, and elevated mortgage rates will remain until the Fed implements cuts to the federal funds rate.

The US housing market has experienced a significant upswing in home prices over the past few years. However, forecasting the housing market for 2024, there are signs that this trend may be changing. The data from the housing market indicates a potential housing market correction, with home prices stabilizing and, in some regions, even dropping. 

According to the Central Finance Group, the real estate forecast for next 5 years presents mixed messages. Some experts predict a stable housing market, whereas others foresee a downturn, leading to a real estate crash. In order to better understand the mixed messages, factors that primarily affect the housing market need to be evaluated. First and foremost is the trend in interest rates. Higher rates typically lead to increased mortgage payments. This reduces the affordability of homes for many potential buyers. This scenario can potentially lead to a housing market correction if the rate rising trend continues. Inflation also plays a crucial role in the housing market. High inflation rates cripple the purchasing power of the consumer. This in turn makes it more challenging for individuals to afford new homes. If wages do not keep up with the cost of living, we could end up with a scenario where home price dropping becomes a common phenomenon. 

Despite these challenges, there does remain a healthy demand for home purchases amongst millennials. This demand could potentially protect the housing market from a severe crash. Additionally, a limited housing supply has been a persistent issue, and it continues to influence housing market predictions 2024. A limited housing supply combined with a high demand from millennials may play a leading role in keeping the housing market from crashing again. Finally, it is important to remember that in order for the demand from the millennials to positively influence the housing market; interest rates must be cut by the Fed. This is the only way these millennials will be able to afford to purchase a home. If interest rates remain high or continue to rise, it will not matter how much of a demand there is. At the end of the day, the demand will not be met simply because it is unaffordable. 

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