While 2023 may have felt like a slow, painful crawl for many in the U.S. housing market, the National Association of Realtors (NAR) is signaling that 2024 is set to be a completely different story. After two years of a sluggish market, primarily due to soaring mortgage rates, we’re looking at a potential rebound. This shift isn’t just wishful thinking; it’s based on the expectation that falling mortgage rates will reawaken a massive pool of pent-up demand from buyers who’ve been sitting on the sidelines.
For those following the housing market closely, 2023 was a year of significant contraction. The NAR’s data indicates that home sales for the year are likely to drop by around 18%, marking the most substantial decline in at least 15 years. We haven’t seen sales volumes this low since 2010, just as the market was beginning its recovery from the financial crisis.
What caused this dramatic slowdown? The primary culprit was the rapid ascent of mortgage rates. The average rate for a 30-year fixed mortgage climbed to nearly 7.8% by late October 2023, driven by the Federal Reserve’s aggressive interest rate hikes aimed at combating inflation. This spike in borrowing costs priced out a significant number of prospective buyers, effectively freezing the market.
Surprisingly, despite the significant drop in demand, home prices didn’t plummet. Instead, they continued to inch upward in many areas. This counterintuitive trend is largely attributed to a persistent shortage of available homes. With fewer properties on the market to absorb the remaining buyer interest, sellers maintained their pricing power, adding another layer of difficulty for financially stretched buyers.
However, the outlook for 2024 is decidedly brighter. The NAR projects a notable improvement in mortgage rates, forecasting an average of 6.3% for a 30-year fixed mortgage. While this rate is still higher than the historically low levels seen in recent years, it represents a significant easing from the 2023 peak. This projection is based on the expectation that the Federal Reserve will begin cutting interest rates in 2024, potentially starting in the spring.
According to NAR researchers, this anticipated decline in mortgage rates is expected to draw a substantial number of buyers back into the market. This includes not only first-time buyers who were previously priced out but also current homeowners who have been hesitant to sell due to the high cost of financing a new home. This phenomenon, known as the “rate lock-in” effect, has kept many homeowners from listing their properties, further exacerbating the supply shortage. As rates decrease, more of these homeowners are likely to re-enter the market, boosting overall activity.
The NAR anticipates that these improvements in affordability will lead to a broad-based resurgence in housing market activity. The firm projects that new home sales could increase by as much as 19%, while existing home sales are expected to grow by 13%. These increases in sales volume will inevitably create significant opportunities for real estate agents and brokers. Furthermore, sellers are likely to benefit from continued, albeit potentially more moderate, home price appreciation as demand strengthens.
Identifying the Epicenters of Future Growth
To pinpoint the specific geographic areas poised to benefit most from this anticipated market turnaround, the NAR has compiled a list of the top 10 metropolitan areas with the highest levels of pent-up demand. These cities are essentially sleeping giants, characterized by a large reservoir of potential buyers whose activity has been suppressed by the challenging market conditions of recent years. When affordability improves, these markets are expected to experience a significant surge in home transactions.
The NAR’s methodology for identifying these markets involved analyzing ten key factors across the 100 largest U.S. metropolitan areas. These factors were carefully selected to capture various dimensions of market health and buyer potential. Key metrics included the extent of home price appreciation in the third quarter of 2023 compared to the previous year, the percentage of renters in each market who possess the financial capacity to purchase a median-priced home, and the estimated share of buyers who would re-enter the market if mortgage rates were to fall to 6.5% or lower.
Beyond these direct affordability and demand indicators, the analysis also incorporated broader economic health markers. These included the rate of job growth within each metro area, the rate of income growth, and the local crime rate. By considering a comprehensive suite of economic and housing-specific variables, the NAR has developed a robust framework for predicting which markets are best positioned for a rebound.
Each of the top 10 markets identified by the NAR is detailed below, including specific data points such as its 2023 home price growth rate, the percentage of renters who can afford a median-priced home, the projected share of returning buyers if rates drop to 6.5%, and additional commentary from the National Association of Realtors that provides deeper context on the market dynamics at play.
Austin, Texas
2023 Home Price Growth: -7.7%
Share of Renters Who Can Afford a Median-Priced Home: 18.9%
Share of Returning Buyers If Mortgage Rates Fall: 5.1%
Commentary: “This region boasts one of the largest pools of ‘returning’ buyers. If interest rates drop to 6.5% in 2024, 5.1% of all households will once again have the means to afford the median-priced home. Despite ongoing housing cost challenges, a notable trend is emerging as many Millennials earning over $100,000 are relocating from other states to this market. While prices seem to be very sensitive to market changes, the influx of these high-earner Millennial renters, coupled with the presence of ‘returning’ buyers, is anticipated to fuel growth in the local housing market. According to the Austin Board of Realtors, home sales activity has already shown a positive turnaround.”
Dallas, Texas
2023 Home Price Growth: 1.9%
Share of Renters Who Can Afford a Median-Priced Home: 21.5%
Share of Returning Buyers If Mortgage Rates Fall: 4.9%
Commentary: “Among the 100 largest metro areas, Dallas had the second fastest-growing job market. The local economy was able to create more than 4% additional jobs compared to the previous year. With 22% of renters able to afford to buy the median-priced home, housing activity will increase in this area as mortgage rates will fall in 2024.”
Dayton, Ohio
2023 Home Price Growth: 9.1%
Share of Renters Who Can Afford a Median-Priced Home: 30.6%
Share of Returning Buyers If Mortgage Rates Fall: 4.7%
Commentary: “Dayton is not only affordable but also offers many affordable options to first-time buyers. These buyers can afford to purchase more than half of the listings in this market. Furthermore, a strong job market in this area will allow more renters to make the transition to homeownership next year.”
Durham/Chapel Hill, North Carolina
2023 Home Price Growth: 2.6%
Share of Renters Who Can Afford a Median-Priced Home: 18.8%
Share of Returning Buyers If Mortgage Rates Fall: 5.6%
Commentary: \”The Research Triangle could not be left off the list. The Durham metro area leads with the highest share of ‘returning’ buyers, accounting for 6% of the households that can afford again to buy a home. This area is lacking affordable listings for first-time buyers, but wage growth has been tremendous with average earnings rising by 13 percentage points from last year.\”
Harrisburg, Pennsylvania
2023 Home Price Growth: 8.5%
Share of Renters Who Can Afford a Median-Priced Home: 32.1%
Share of Returning Buyers If Mortgage Rates Fall: 5.3%
Commentary: \”While this area is already affordable for more than 30% of the renters, it’s also attracting high-earner renters from other states. In the meantime, with the anticipated decline in mortgage rates next year, both inventory and buying activity are expected to grow further in this area as existing homeowners sell their homes. Notably, 42% of homeowners have already surpassed the average tenure of 15 years for this area.\”
Houston, Texas
2023 Home Price Growth: 3.7%
Share of Renters Who Can Afford a Median-Priced Home: 23.8%
Share of Returning Buyers If Mortgage Rates Fall: 4.3%
Commentary: \”Yet the third area of the Texas Triangle had made it to the list. Affordability and strong job and wage growth in Houston will boost activity in this market in 2024. While housing affordability for renters in Houston surpasses that of most markets across the country, the noteworthy aspect is the fourfold increase in wages, outpacing the national level.\”
Nashville, Tennessee
2023 Home Price Growth: 0.7%
Share of Rent
