The housing market will improve slightly in 2024, but low housing affordability and a weak economic backdrop will help constrain demand, according to projections from Fitch Ratings. According to Fitch Ratings’ Home Builders Outlook 2024, higher-for-longer mortgage rates, elevated home prices, and higher unemployment in 2024 will be headwinds for the housing sector.
“Low housing affordability is unlikely to cede next year given our expectations of rates staying higher for longer and for home prices to remain relatively stable,” senior director Robert Rulla said during a webinar discussing the outlook. “While we are no longer expecting a recession next year, economic growth is forecast to slow sharply, including expectations of high unemployment rates and lower consumer spending. This will likely lead to lower consumer confidence and to overall housing demand remain[ing] muted.”
In 2024, Fitch Ratings projects single-family housing starts will grow between 3% and 4%, single-family sales will grow in the low single digits, and multifamily starts will fall in the high teens.
“Home builders may continue to lower their square footage, offer price reductions, or offer more mortgage rate buydowns to drive demand,” Rulla said. “A lot of builders are prioritizing pace so we expect incentives to be elevated through 2024. This should make new-home construction an attractive alternative for potential buyers in the coming year.”
Affordability, particularly for entry-level and first-time home buyers, is projected to remain challenged in 2024. Fitch expects the 30-year mortgage rate to stay elevated through the end of 2024. Additionally, national home prices are projected to between 0% and 3% in 2024. New-home prices are projected to decline by a magnitude in the mid-single digits in 2024 due to elevated incentives, price adjustments, and lower square footage.
Fitch projects existing-home inventory will remain tight in the coming year, creating a benefit for builders with the ability to offer quick move-in homes. According to the outlook, the new-home share of the overall housing market will be elevated compared with historical levels over thee last decade and a half.
“Because of the builders’ ability to adjust their product offerings and offer incentives to address the affordability issue, I think new-home construction will continue to have a larger piece of the pie relative to what we’ve seen in the previous decade,” said Rulla.
While spec activity remains an attractive option for well-capitalized builders, Rulla says high spec activity “is probably one of the biggest risks we see for home builders.”
“Home builders could be burdened with excess inventory if the market turns quickly or if the existing-home market becomes flooded with supply,” Rulla said. “This could lead to lower margins than currently projected.”
