2024 Housing Market Forecast for Real Estate Investors
By Michelle Clardie on 11/30/2023.
Reviewed by Dan Gatsby.
Housing market conditions for 2023 were vastly different from recent years. We saw a definitively slower market, with lower buyer demand and reduced rates of growth. Can you expect more of the same in the coming year?
In this 2024 housing market forecast for real estate investors, we’re looking at the market conditions you can expect to see over the next 12 months. And we’re going to give you specific strategies for capitalizing on these conditions!
3 Market Conditions to Expect in 2024
Here are the key market factors for real estate investors to watch for in the coming year.
1. Stable Interest Rates
By affecting the cost of borrowing money, interest rates heavily impact real estate. The more it costs to borrow money, the less inclined buyers are to purchase. Plus, property owners with a low interest rate are hesitant to sell if they would need to take on a new mortgage with a higher rate to purchase their new home.
As we close out 2023, interest rates for a 30-year fixed-rate mortgage are hovering just below 8%. Compared to the pandemic era, which saw rates as low as 2.65%, this feels extremely high. Even pre-pandemic, rates were mainly in the 3.5% to 5% range going back to the housing market collapse of 2008, adding to the perceptive of 8% being too high.
However, a look at mortgage interest rates over time confirms that today’s rates are reasonable from a long-term perspective. Through the 90s, rates largely remained between 7% and 10%. The 80s never saw rates dip below 9%. In fact, during the early 80s, rates exceeded 15%, going as high as 18.65% in 1981!
So, while 8% feels high compared to recent years, don’t let it prevent you from investing in real estate in 2024.
How to Work with 2024’s Interest Rates
There is no reason to avoid investing while rates are higher than normal. Image an investor in the 80s waiting for rates to fall below 5% before purchasing more property. They would have missed out on extraordinary deals!
Having said that, if you’re concerned about interest expenses, here are a few tips to help you navigate the current rates:
Maintain strong credit scores for lower rates. Higher credit scores indicate less risk to lenders. This allows lenders to offer favorable terms, like lower rates, to borrowers with great credit.
You can refinance if rates drop in the future. So long as you maintain your financial position and your property retains its value, you’re never really trapped by a fixed-rate mortgage. If rates drop in the future, you can refinance to replace your existing mortgage with a new mortgage with the lower rate.
Consider an ARM for automatic adjustments. If you feel certain that rates will come down in the future, you can use an adjustable-rate mortgage, which automatically fluctuates to match market rate changes.
Try creative financing. Some financing options offer lower rates than traditional mortgages. With seller carry-back financing, for example, the seller essentially lends you the money for the purchase, allowing you to pay for the property in monthly installments. The seller may be willing to offer a much lower rate than a traditional mortgage lender.
2. Low Inventory
The number of property sales has been declining over the last few years. There simply aren’t enough homes available for sale. And there are several factors contributing to the lack of inventory:
Too little new construction. Back in the housing boom of the early 2000s, home builders were over-leveraged, carrying as much debt as possible to build as many new homes as possible. When the housing market collapsed, many of these builders were left with useless inventory and a mountain of debt. As a result, builders backed off. They remained overly cautious as the housing market recovered, resulting in a decade of too little construction, and a lack of inventory today.
“Aging in place.” The generations before the Baby Boomers typically chose to sell the family home and downsize to condos or assisted living facilities at a certain age. Boomers, however, are opting to remain in place as they age, preferring to live out their golden years in the comfort of home. This means fewer housing options available to today’s Gen X, Millennial, and Gen Z buyers.
Owners with low interest rates. As mentioned, property owners who managed to lock in mortgages with rates below 5% are hesitant to sell today because the financing needed to purchase their new home would be substantially more expensive.
This low inventory means that the chances of a market crash are slim to none. Even as buyer demand has waned with increasing interest rates, the lack of inventory is keeping the supply and demand in balance. In fact, in many markets, demand still exceeds supply, giving sellers an upper hand in negotiations.
How to Work with Low Inventory in 2024
Real estate investors are getting more creative as they search for new properties to acquire in 2024. Many are looking at off-market distressed properties, perhaps attending local tax auctions or contacting property owners who are in pre-foreclosure. And some investors are choosing to develop multi-family structures on raw land rather than looking for existing structures to fix and flip.
3. Modest Appreciation in Many Markets
When property values skyrocketed in the pandemic years of the early 2020s, many investors mistakenly put their new acquisitions on hold, believing that the aggressive value growth indicated a market bubble. It’s true that some markets became overpriced during this period, with values being artificially inflated temporarily. But, on the whole, the growth was the result of legitimate supply and demand factors. This means that properties are retaining most, if not all, of the gains achieved during the recent real estate boom.
Of course, the level of growth seen from 2020 through 2022 was not sustainable. 2023 saw lower levels of growth, as well as slight corrections in markets that had become overpriced. For 2024, we’re expecting modest gains in most markets.
How to Work with Value Appreciation in 2024
The big lesson here is that there is no impending market crash. The gains from the last few years are here to stay. So there’s no point in waiting for values to drop before growing your real estate portfolio.
But there’s a more subtle opportunity here as well. If you still own property purchased before 2020, you’re probably sitting on a small fortune in equity. Tapping into this equity is one option for financing your next real estate investment. Through a home equity loan or home equity line of credit (HELOC), you can borrow against your equity, giving you the cash needed to fund your next investment project.
Real Estate Investment Strategies for 2024
Are you looking for smart real estate investments in 2024? Here are three real estate investment strategies to consider.
1. Built-to-Rent
As more renters have been priced out of the housing market, there is a growing group of young adults and families looking to rent spaces that feel like a home rather than an apartment.
Built-to-rent developments are designed and constructed specifically for this group of renters. By building rental units that feel more like home, investors can appeal to reliable, high-earning residents, charge higher rental rates, and reduce turnover rates.
2. Affordable Developments
The cost of housing has increased substantially since 2020, both for buyers and renters. While recent wage increases have helped many of us keep up with housing costs, many others have struggled to keep pace. As a result, the demand for affordable housing is exceedingly high, particularly in high-value, densely-populated urban markets, like Los Angeles.
Through the Section 8 affordable housing program, real estate investors, developers, and landlords can provide housing to low-income households in need of affordable rent. The rent is subsidized by the US Department of Housing and Urban Development (HUD), meaning that up to 70% of the market-rate rent will be paid by HUD, allowing the tenant to shoulder just 30% of the cost. For investors, Section 8 participation can result in quick lease-ups, reliable rent payments, and low turnover.
3. Tailoring Multi-Family Units for Multiple Roommates
As rental rates have increased, more renters are bringing in multiple roommates to share in the rent payments. However, traditional one and two-bedroom apartments are not ideal for those with two or more roommates. Instead, real estate investors and developers can meet a growing need for multiple-roommate households by building units that work for this demographic.
Multi-family structures with large units of three to five bedrooms are in high demand among young professionals. Floorplans in which the bedrooms are of a similar size, and all come with their own private bathrooms are perfectly suited for those with multiple roommates. This layout allows each resident to live comfortably, with a level of privacy, while paying a reasonable share of the rent. And investors benefit from the high demand, which leads to quick lease-ups and high rental rates.
Invest with Gatsby Investment in 2024
As you think about your real estate investment strategy for the coming year, consider how Gatsby Investment can help you meet your goals.
Gatsby Investment is a California-based real estate syndication company. We pool funds from multiple investors to finance unique projects with high return potential, including the BTR, Section 8, and multiple roommate multi-family developments discussed in this article. Our team of real estate professionals handle every detail of the investment for you. With Gatsby, you get the benefit of investing in high-demand deals without the hassle and financial risk of doing it alone.
