The past year has been a particularly brutal one for the housing market. Buyers can’t afford to buy, sellers don’t want to sell, and there are extremely few homes available for sale. The market, by most measures, appears to be frozen. Something has to give, right? Now the question is... Will 2024 be the year the housing market finally becomes unstuck? Let’s break down each of the above issues and see where that leaves us.

BUYERS CAN’T AFFORD TO BUY. At this time last year, the consensus was that interest rates would float down throughout the year. They did exactly the opposite as they approached 8% before retreating to the current levels in the low 7% range. The consensus for 2024 is that interest rates will continue to drop, possibly going as low as 6%. This is still a far cry from the historically low rates buyers enjoyed just a short while ago. Additionally, home prices in Lancaster County have continued to rise sending more and more buyers to the sidelines.

SELLERS DON’T WANT TO SELL. High mortgage rates are also prompting many homeowners to stay put. About two-thirds of homeowners with mortgages have 30-year rates below 4%. There is little incentive for these folks to sell, especially when purchasing a new home at a higher rate will cost them so much more each month. Those who list their homes and purchase new ones generally have to do so because their family situation changes, such as with a new baby or a divorce, or they’re relocating for a new job or retirement.

EXTREMELY FEW HOMES AVAILABLE FOR SALE. In the past 5 years there have been thousands of new rental homes constructed which has helped relieve some of the pressure on the rental market. New home construction has accelerated, but not enough to offset demand – especially at the lower price points. Additionally, the “interest rate prison” sellers are experiencing has caused resale home inventory to remain at historically low levels. As a result, while Lancaster County population has consistently grown about 1% each year (approximately 5,000 new residents annually), the number of home sales has dropped almost 40% over the past 2 years.

We are still firmly in a strong seller’s market and lack of housing inventory is the largest barrier to getting real estate back to a more balanced market.

With all of the above said, by the end of last year there were still enough buyers to sustain a 6% increase in Lancaster County home prices even though the cost of borrowing had risen dramatically. Nationally home prices are predicted to fall slightly; however, my expectation is that Lancaster County home prices will continue to rise, albeit at a much slower pace than in 2021 and 2022 – probably more in the 5% to 6% range that we saw last year. If interest rates do float down it will bring some buyers back into the market and it also will bring some sellers into the market who are willing to trade their 4% mortgage for a 6% mortgage. I expect inventory will improve slightly so there will be a few more homes to sell. Paradoxically, it is STILL both a good time to sell and buy a home and my prediction is for 2024 to be a better year for real estate than 2023. Regardless of national or local trends, the most important factor you should look at is whether the time is right for YOU.

Hopefully, this information has been helpful to you to put the market conditions in perspective. Please contact me if you, or someone you know, have any real estate needs or questions or if you want to discuss market conditions.