Just under two-thirds of American households owned their own homes in 2024. Homeownership increased by only 10.1 million units from 2010 to 2020, the lowest mark for any decade dating back to 1950. Homeownership is particularly challenging for young adults in the United States. The ownership rate for Americans under the age of 35 has dropped by 45 percent since 1990, with only 39 percent of young adults owning a home in 2022. Individuals interested in upgrading their living situation, or owning a home for the first time, should familiarize themselves with a few of the trends set to shape the real estate market in 2024 and beyond.
For prospective buyers in 2024, the last few years have been defined by record high mortgage rates and a shortage of inventory, leaving many individuals and families with nothing to do but wait for market conditions to become more favorable. Fortunately, mortgage rates have started to fall, in part due to the Federal Reserve’s decision to cut rates. Mortgage rates declined to 6 percent in September 2024, compared to 8 percent in November 2023.
Inflation has also contributed to the state of the American housing market. Inflation hit an all-time high in 2022. The Federal Reserve initially increased federal funding rates to combat inflation, but this caused mortgage rates to increase further. Year-over-year inflation hit a record high in June 2022, up 9.1 percent, but has dropped considerably since, increasing just 2.5 percent between August 2023 and August 2024.
Meanwhile, home values are on the rise. According to real estate service provider Zillow, the average home in the US has a value of $361,282, up nearly 3 percent from 2023. The combination of home prices and climbing mortgage rates has created an affordability crisis for many potential buyers. At the same, homeowners preparing to buy a new home have also had to delay purchases, exacerbating the inventory problem. That said, falling mortgage rates and a stabilized inventory are especially helpful for first-time homebuyers, who typically lack the buying power of existing homeowners. The rate of inflation is expected to fall further entering 2025, helping to facilitate mortgages.
While many elements of the real estate market have shifted toward a more buyer-friendly environment, homebuying activities did not pick up much in 2024. Rates remain too high for some buyers, while other Americans have taken note of these trends and are waiting for home prices to soften. Inventory issues are expected to persist into 2025. A 2024 Zillow report determined that the nation is about 4.5 million homes short of demand, which drives up prices for both homeowners and renters.
Prospective homeowners should carefully assess their buying power in 2024 and into 2025, as the falling mortgage rates may have unintended consequences. In a healthy, stable market, rising mortgage rates help keep home prices down. However, without a fully stocked inventory, home prices have remained high and may increase significantly as mortgage rates continue to fall. Fannie Mae estimates that home prices will be up 6.1 percent by the end of 2024.
Fortunately, despite reporting to the contrary, the likelihood of a real estate market crash is minimal in the near future. With such a large shortage of inventory, home prices should continue to rise unabated, though a sudden drop in demand or an economic recession could cause the real estate market to ease for buyers.
