Buying a House in 2024: What's changed?

(NerdWallet) - At the risk of jinxing it, things are looking up for home buyers.

The average rate on a 30-year fixed rate mortgage has dropped for three consecutive months (and counting). Competition has calmed down a bit — and inflation has, too. And while we’re still technically in a sellers’ market, the inventory of homes for sale in June reached its highest level in more than four years.

Hoping to buy in 2024? If you’re well prepared with a budget and a mortgage preapproval, you might not even need to knock on wood. Let’s look at the good news, the challenges and the wild cards that remain for home buyers this year.

Good news: Mortgage rates drop to a one-year low

Finally, some relief: In the week ending Aug. 15, 30-year mortgage rates dropped to an average 6.28%, their lowest weekly average since February 2023. That’s welcome news for shoppers who have felt burned by high rates — or maybe even put their house hunt on ice until the cost of borrowing cooled down.

Over the past two years, buyers have been at the mercy of mortgage rates’ meteoric rise, holding on as the average 30-year fixed rate climbed from 3% to nearly 7% in 2022. In October 2023, rates topped 8% for the first time since 2000 — a surprise even many top economists didn’t predict. Higher interest rates make it more expensive to get a mortgage.

To put that in perspective: Let’s say you can afford $1,800 per month in principal and interest. At a 7% interest rate, you could afford to borrow $270,600. But at a 6% interest rate, you could afford to borrow $300,200 — nearly $30,000 more — for the same amount per month. When interest rates go down, home shoppers’ purchasing power goes up.

For now, economic signals suggest more positive news for buyers in the latter half of 2024. Dan Moralez, regional vice president at Dart Bank in Holland, Michigan, points to a cooling economy and a potential cut to the federal funds rate. “All of that stuff really lends itself to mortgage rates getting better and the cost to borrow getting cheaper, which is really good for those people who have maybe sat on the sidelines hoping to see rates get better,” Moralez says.

More good news: It’s nearly certain the Federal Reserve will cut the federal funds rate by at least 25 basis points at its next meeting Sept. 17-18, according to CME Group’s FedWatch tool. (A basis point is one one-hundredth of one percent.) While the Fed doesn’t set mortgage rates directly, the federal funds rate influences the cost of long-term loans, including mortgages.

Your strategy: If you’re ready to buy, jump in now

A potential Fed rate cut is welcome news, but in the meantime, it’s not a reason to put off your search. Changes take time to trickle down, so avoid the self-induced pressure of timing the market perfectly. Instead, focus on shopping within your budget right now.

Also: When rates go down, competition goes up — another reason there’s no time like the present to start house hunting.

Whichever way rates move in the remainder of 2024, you’ll save money if you shop around. Aim to get an estimate from at least three mortgage lenders. The Consumer Financial Protection Bureau estimates borrowers can save $100 per month (or more) this way. And look at the annual percentage rate, or APR, to understand the total cost of the loan, which includes fees and other charges.

One final tip about rates: Do your research before picking a mortgage lender with the flashiest discount. This year, some lenders have been advertising “buy now, refinance later” offers. Others are offering temporary buydowns, where the buyer’s effective monthly payment is reduced for a year (or a few). Each option could potentially save money, but Moralez says it could also be “smoke and mirrors” if the deal is offset by higher fees.

“It’s one of those things where I tell folks, ‘There’s no free lunch, OK?’” he says. “You know, somebody is paying for it somewhere.”

Good news: More inventory, less intense competition

Recently, the supply of homes for sale could be summed up in two words: Slim pickings.

But in June, shoppers got some good news: The number of existing homes for sale reached a four-year high, according to the National Association of Realtors (NAR). Nationwide, there was a 4.1-month supply of homes for sale, meaning it would take just over four months at the current pace for all properties to sell. The U.S. market hasn’t seen that much housing inventory since May 2020, when the supply was 4.5 months.

Demand still outpaces supply, but with more homes to choose from, buyers are less likely to encounter intense bidding wars reminiscent of the pandemic years. Houses for sale are getting fewer offers compared to last year, according to the NAR’s June 2024 Realtors Confidence Index, a survey of its members. In June, a home listed for sale received an average 2.9 offers, compared to 3.5 offers in June 2023.

Another sign of cooling competition: Houses are staying on the market longer. In June, 65% of homes sold in less than a month, compared to 75% at the same time last year. The median time on the market in June was 22 days, a full four days longer than June 2023, when the median time on the market was 18 days.

With pending home sales also on the rise in June, NAR Chief Economist Lawrence Yun says he expects to see even more houses getting listed ahead of typical seasonal declines in winter. "The rise in housing inventory is beginning to lead to more contract signings," Yun said in a news release. "Multiple offers are less intense, and buyers are in a more favorable position."

Your strategy: Cast a wide net

While an improvement from recent years, a 4.1-month supply of homes for sale is still technically a seller’s market. A balanced market has about a six-month supply of homes for sale; a buyer’s market has more than six months’ worth.

You can’t control who puts their house on the market, so in the meantime, focus on the options available now. Let go of the fantasy of finding the perfect home when a “good enough” home can get your foot in the door sooner. That’s especially true for first-time home buyers who are eager to build equity.

“Last year, we certainly didn’t have enough houses — and we still don’t,” says Ellie Kowalchik, a real estate agent who leads the Move2Team with Keller Williams Pinnacle Group in Cincinnati, Ohio. “Don’t wait until the spring to start looking.”

For now, maybe you expand your search to include condos or townhouses. Maybe you settle for fewer bathrooms or a dated interior. Keep your chin up — even if you have to tolerate less square footage or weird linoleum floors for a while, you’ll have equity to remodel or sell in a few years.

Still challenging: Home prices climb to record highs

While some aspects of homebuying have gotten easier as 2024 rolls on, one challenge remains: home prices. The sales price of existing homes has risen for 12 straight months, according to the NAR. In June, the national median sales price hit a record high of $426,900.

As more inventory hits the market, though, the degree of home price growth has slowed somewhat over the summer, according to an August 2024 report from ICE Mortgage Technology. Still, if you compare the cost of buying a house to the median household income, July 2024 was one of the least affordable months to buy a home in more than three decades. Why? Home prices are growing faster than wages, and on top of that, high mortgage rates increase the cost of borrowing.

Until supply catches up to demand, prices are unlikely to fall. Realtor.com estimates prices will fall less than 2% by the end of 2024. No one can predict exactly what the market will do, but if you’re an optimist, there’s reason to be hopeful that prices are reaching a plateau.

“Even as the median home price reached a new record high, further large accelerations are unlikely,” Yun said in a press release. “Supply and demand dynamics are nearing a balanced market condition.”

That’s another reason to jump in now: A big drop in prices could trigger more competition.

Your strategy: Make a budget and stick to it

If you’re Zillow-stalking houses you can’t afford, stop. Instead, channel that energy toward your plan to shop for a house in real life — starting with setting a realistic budget.

First, talk to a financial advisor or use an online calculator to see how much house you can afford. Understand how mortgage lenders will determine your eligibility, including analyzing your credit score, cash savings and monthly debt payments.

Next, find a buyer’s agent who knows how far your budget can go in your local market. An experienced agent can advocate for you and help you snag a good deal.

Wild card: Changes to real estate commissions

One of the year’s biggest shakeups has been a major legal settlement with the NAR, which changes the way your buyer’s agent gets paid. While the NAR admitted to no wrongdoing, it will pay $418 million to settle more than a dozen antitrust lawsuits accusing the organization of enforcing rules that inflated real estate commissions. These changes take effect Aug. 17.

Previously, home sellers generally set the agents’ commission — typically 5% to 6% of the home sale price that was then split between the buyer’s and seller’s agent. Now, a new system is in place: You'll have to sign a contract with your buyer’s agent, which spells out the terms of how they get paid.

For now, many real estate brokerages will likely stick with the familiar commission structure of a percentage of the sales price. But the settlement opens the door for new ways for agents to get paid, such as a flat fee or an hourly rate. Time will tell what becomes the new standard.

Your strategy: Brush up on your negotiating skills

When hiring a buyer’s agent, be polite but firm when negotiating. If the commission is more than you want to spend, ask if the agent would be willing to lower it. Point out any fees you don’t understand. And if you still aren’t comfortable with the terms, it’s OK to shop around or walk away.

While the new rules are more complex, they also give you, the buyer, more leverage in negotiating for your best interests. Buying a home is a big journey, and when you sign that contract with a buyer's agent, you should feel supported and empowered about the business relationship that lies ahead.

The bottom line: Set realistic expectations

Things are looking better compared to the beginning of this year, but if you haven’t found a house yet, it’s fair to feel bummed out about high costs and complexity.

The solution: Think long-term. Holding out for lower rates or “perfect” buying conditions likely means you’ll face steeper prices and more competition. So if you’re determined to buy, find a place that suits your needs and budget as-is. Expecting perfection often means setting yourself up for disappointment.

“Sometimes I have clients that think they're going to hit a home run the very first house they buy,” Moralez says. “And a lot of times I tell clients, well, sometimes it's OK to be happy just getting on base.”