2024 has been a difficult year for prospective homebuyers. Limited housing inventory, historically high interest rates, and increased property prices have created obstacles for anyone looking to purchase an affordable home this year.
The challenges in the housing market have been exacerbated by a combination of factors, including supply chain disruptions, labor shortages, and increased demand for suburban properties following the COVID-19 pandemic. These factors have contributed to a significant imbalance between housing supply and demand, driving up prices and making it increasingly difficult for first-time buyers to enter the market. Additionally, the rise of remote work has led to a shift in housing preferences, with many buyers seeking larger homes with dedicated office spaces, further intensifying competition in certain areas.
Although 30-year fixed-rate mortgages have remained between 6% and 7% for the previous year, analysts predict that rates will continue to fall. The CME FedWatch program forecasts that the Federal Reserve Board will lower interest rates twice by the end of 2024.
Though a September cut is largely predicted at the Federal Open Market Committee's meeting on September 17-18, an additional rate cut might boost consumer confidence in the housing market.
The potential rate cuts by the Federal Reserve are being closely watched by both buyers and sellers in the housing market. Lower interest rates could provide some relief to buyers by reducing monthly mortgage payments and potentially increasing purchasing power. However, experts caution that rate cuts alone may not be sufficient to address the broader affordability issues in the housing market, as home prices remain elevated due to the ongoing supply-demand imbalance. Some economists argue that a more comprehensive approach, including policies to incentivize new construction and address zoning restrictions, may be necessary to create a more balanced and accessible housing market.
The lack of affordability has pushed consumers, particularly young buyers, to consider co-buying homes. 26% of buyers bought a home with a friend or family member, and 44% mentioned affordability as the primary reason for co-buying.
TheStreet interviewed Ryan Serhant, a real estate broker, TV personality, and CEO of SERHANT, about the 2024 housing market and how buyers are adapting to new obstacles.
2024 Housing Market Trends
The increased demand for property has resulted in an intensely competitive market, with cash bids becoming the most effective way to buy a home.
"Cash is king," Serhant declared. "Prior to Covid, in New York City, 30% to 35% of buyers paid in cash, regardless of whether they were performing a technical refi after closing. Today, it hovers around 70%."
Although this trend is popular in large cities, cash-only offerings are becoming more common across the country. According to the National Realtors Association, as of January 2024, 32% of house transactions are all-cash.
The prevalence of all-cash transactions has significant implications for the housing market and potential buyers. This trend has created additional challenges for those relying on traditional mortgage financing, as they often find themselves at a disadvantage when competing against cash buyers. Real estate experts note that sellers often prefer cash offers due to their simplicity and reduced risk of financing falling through. This dynamic has led to increased frustration among first-time buyers and those with limited cash reserves, potentially exacerbating wealth inequality in the housing market. Some industry professionals are calling for policy measures to level the playing field and ensure fair access to homeownership opportunities for a broader range of buyers.
Given the increased market demand and the fact that 29% of home purchasers are single, it's simple to understand the attractiveness of splitting the cost with someone you trust.
Serhant discusses why younger clients are becoming increasingly interested in co-buying properties.
"If you have a lot of cash, the housing market is going to favor you, albeit unfairly," he told me. "We are starting to see younger consumers enter the market and co-purchase. If you had asked me about people co-purchasing ten years ago, or even three years ago, I would have thought it was a very difficult thing to do. It's becoming more common."
Co-purchasing homes helps younger buyers develop wealth.
Despite a hard market, Serhant explains how co-purchasing a home can help the younger generation acquire wealth.
"You'll see two young people looking at rents, and they're saying, 'Okay, rents are going up 3% to 10% a year — let's go and buy something together instead."
"Home ownership is a pathway to wealth, especially in the United States," he says. "That has always been the case, and it will not change. If buyers can get a better deal by pooling their funds, they can be roommates on a house they buy together."
Co-buying is becoming more common due to legal mechanisms that make it appealing to all parties involved. It's growing in New York City, even in condos with stringent boards and restrictions.
While co-buying presents an innovative solution to housing affordability challenges, it also introduces new complexities in the real estate market. Legal experts emphasize the importance of clear agreements between co-buyers to address potential issues such as property maintenance, decision-making processes, and exit strategies. Financial advisors are increasingly working with clients to navigate the intricacies of co-ownership, including considerations for mortgage applications, tax implications, and long-term financial planning. As this trend continues to grow, some real estate developers are exploring new housing models specifically designed for co-ownership arrangements, potentially reshaping urban development and community living concepts in the coming years.
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