Should you wait for a better deal on a home or jump in now? Here's what housing market economists say.
Falling mortgage rates can lead to a surge in homebuyer demand, which pushes prices up.
But an uptick in housing inventory could blunt the impact of a demand spike, economists said.
In addition, mortgage rates have limited downside this time around.
The housing market is beginning to ease up, with mortgage rates slipping and prices softening. That's good news for homebuyers who had been waiting on the sidelines.
But they may be tempted to see how much further conditions improve as mortgage rates are already falling at the fastest pace since the 2008 crash.
There's a big catch to that idea though: as rates drop, more buyers may jump in, potentially sending home prices up. Due to that risk, real estate expert Barbara Corcoran has warned against waiting for a better deal.
We don't have to look too far back to see what happened the last time interest rates fell. In 2020, when the Fed began easing to keep the economy chugging along during the pandemic, mortgage rates plummeted below 3%, and home prices rocketed higher.
That situation, however, is fundamentally from what's coming up in 2024, said Lawrence Yun, chief economist at the National Association of Realtors.
"I don't anticipate that type of situation this time," he told Business Insider. "First, we're not going to get to 3% mortgage rates. And the second is that I think we're going to certainly see more inventory come out to the market."
Indeed, many housing experts think mortgage rates won't drop that much further, slipping to 6% next year from just below 7% now after hitting 8% in October.
And if more homes come on the market, a demand spike won't force prices higher. Next year may see housing supply thaw after this year's crunch kept the market largely frozen.
There are some signs that more homes are coming on the market — November's housing starts data signaled fresh supply on its way.
Meanwhile, demand may not actually spike right away. Hannah Jones, senior economics research analyst at Realtor.com, said fewer people are in the market right now because buyers are waiting out the fall in mortgage rates.
While she expects rates to go a little bit lower next year, "a buyer may be facing less competition because less buyers have decided to re-enter the market."
However, Redfin chief economist Chen Zhao cautioned that it's hard to anticipate where mortgage rates or home prices will go.
In previous instances when mortgage rates have been coming down, it's because the Fed was cutting rates into a recession, she pointed out.
"And that's a really important distinction because right now going into 2024, the Fed anticipates cutting, markets anticipate the Fed cutting, but no one is anticipating the Fed cutting into a recession," she said in an interview.
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