With U.S. home prices dropping and mortgage rates projected to dip sometime in 2024, homebuyers might be wondering if they should wait until next year to land a more affordable deal.
But with the economic outlook particularly murky right now, buyers shouldn't be overly concerned with timing their purchase, real estate experts tell CNBC Make It.
The average interest rate for the benchmark 30-year fixed mortgage reached 7.08%, as of Monday. However, with the economy expected to cool and possibly dip into a recession, many recent forecasts expect rates to drop to 6% or below in 2024, including a Fannie Mae projection of 5.2%.
A drop of 1% in mortgage rates works out to about $200 in monthly mortgage costs, for a 30-year fixed rate on a $300,000 home loan, according to CNBC Make It's mortgage calculator.
Meanwhile, home prices continue to weaken and are already down 2.7% from their June peak, according to the S&P Case-Shiller home price index. Forecasts are a mixed bag, but most expect prices to either remain flat or continue cooling by 1% to 10% from 2022's highs.
Should you buy a home in 2023 or 2024?
While it might be tempting to hold off on buying a property until a better deal arrives, there's no guarantee that mortgage rates will drop or that homes will become more affordable in 2024, say real estate analysts and economists interviewed by CNBC Make It.
Despite forecasts of lower mortgage rates in 2024, don't expect them to bottom out to the record lows of the past decade, either, says Lawrence Yun, chief economist at the National Association of Realtors.
"Returning to mortgage rates of 3% or 4% is not going to happen, in my view," says Yun, who points out that historically rates have been higher. The low rates of 2020 and 2021 were "unique" and those that got them were "lucky," he says.
Plus, if "mortgage rates go back down to that level, people can always refinance their mortgages," says Yun.
As for home prices, a price correction is largely expected to be short-lived due to a chronic shortage of homes. Declining mortgage rates could also stoke demand, which would likely push prices higher. It's also important to note that real estate trends vary by region, which means that home prices in your area might not drop in either 2023 or 2024.
"I wouldn't necessarily wait around and see if you can get the best possible deal because timing the housing market is very difficult," says Cristian deRitis, deputy chair economist at Moody's Analytics. His firm predicts another 5% to 10% drop in home prices from their peak over the next 18 to 24 months, after which prices will start rising again.
While professional house flippers might need to worry about short-term fluctuations in home prices and interest rates, regular homebuyers who plan to live in their homes more than five years should be less concerned about timing the market, he says.
The short-term forecast for home prices is "a modest decline," he says. "You might overpay a little bit in the short term, but if your tenure is long enough, it's not going to make much of a difference."
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