Many groups that closely track the real estate industry are predicting a decline in mortgage rates, although not to the level seen during the depths of the pandemic. Redfin Corp., for example, anticipates the 30-year fixed-rate mortgage will fall to 6.6% next year, a prediction similar to that of the National Association of Realtors, which predicts an average mortgage rate of 6.3% in 2024. Next year's rates will close around 6.5%, according to Realtor.com, but most of 2024 is expected to see an average of 6.8%.

Danielle Hale, chief economist at Realtor.com, said recent weeks have seen a sharp drop in mortgage rates, the latest example of the rate volatility that's been a hallmark of 2023. As the broader economy, specifically around inflation, begins to moderate, that should push mortgage rates downward — although slowly — and rates are likely to move up and down less rapidly than they did this year, Hale said.

Inventory picture may improve

This year saw constrained inventory among existing homes, making whatever inventory did hit the market competitive and, ultimately, keeping prices high in many markets.

The NAR this week said existing-home sales are projected to be down 18% from last year, the second year in a row in which the existing-home market has seen a double-digit decline in sales from the previous year. Existing-home sales slid 4.1% in October, the latest month available, to a seasonally adjusted annual rate of 3.79 million.

The NAR also is predicting home sales to increase next year, about 13% in the existing-home market and 17% in the new-construction market.

There's evidence that inventory already has begun to increase. New listings bottomed out in April at almost 35% below pre-pandemic norms, according to Zillow. As of November, that shortfall had been reduced to 14%.

While the existing-home market this year has been challenging, the new-construction market has seen a rebound. Single-family housing starts in October, the latest month for which data was available, rose 0.2% to a seasonally adjusted annual rate of 970,000 units, according to U.S. Census data.

In fact, 2023 is on track to be the third- or fourth-best year for new single-family home construction since 2008, said Lawrence Yun, chief economist at the NAR, during its forecast summit. Many homebuilders have leveraged a competitive advantage over the existing-home market this year, with the ability to offer concessions like rate buydowns.

Affordability still expected to be a challenge

If mortgage rates do moderate next year, and more inventory hits the market, does that mean the housing market will become more affordable in 2024?

Yes, albeit not by a significant margin, most housing economists say.

Realtor.com is predicting home prices will decline 1.7% in 2024 after a projected 0.2% growth in 2023 and a whopping 10.3% in 2022. A lack of home-price declines in many markets, paired with a higher mortgage rate, has locked out a significant pool of buyers.