As the economic forecast for 2024 predicts a cooling period, prospective homeowners, particularly the millennials who have been sidelined in the housing arena, might witness a twist in their fortunes. Experts suggest a potential dip in property prices could be part of a larger narrative defined by economic turbulence, job insecurity, and mounting household debt.
For those contemplating a maiden home purchase, the climate seems daunting. Yet, it’s during these periods of economic vitality that the real estate sector typically flourishes. As we reflect on the economic trajectory of fall 2023, signs of deceleration are evident, with the looming shadow of a recession. If housing prices do soften, this could present a strategic entry point for those previously outpriced.
Prospective buyers are advised to safeguard their creditworthiness, reduce liabilities, and maintain punctual credit card settlements to bolster their chances of securing favorable mortgage rates. A savvy move would be to preserve down payment funds in dedicated savings accounts and consider securing a mortgage rate hold to mitigate the risk of escalating rates.
Housing affordability remains a contentious issue, with the National Bank Financial underscoring a grim reality not seen since the exorbitant interest rates of the 1980s. Despite a downturn in prices from their zenith in early 2022, affordability is squeezed by stubbornly high mortgage rates, with the best discounted one-year rates hovering around 6.8 percent and five-year rates at approximately 5.65 percent. A reduction in rates is contingent upon a consistent decline in the current 3.8 percent inflation rate, a trend that is yet to materialize.
The Fed has repeatedly warned buyers that the era of low-interest rates might be a relic of the past, prompting a strategic defense: lock in your mortgage rate now.
Real estate prices have only seen a handful of significant drops since the turn of the millennium. But with unemployment nudging up to 3.9 percent, the domino effect of inflation heightened interest rates, and potential job loss could catalyze a downward pressure on housing prices.
Unemployment not only strains finances but also alters the market’s psychology: buyers become more discerning, and sellers lose their pricing power. While construction expansion is often touted as a panacea for housing affordability, it is the interplay of prices and rates that remains pivotal.
For young buyers aiming to stake their claim in the real estate market of 2024, a robust credit score is their best ally, particularly as lenders might tighten the reins in a subdued economy. Impeccable credit card habits and the reduction of existing debts can enhance one’s credit profile significantly, leading to a stronger position when applying for mortgages.
Moreover, capitalizing on the benefits of a first home savings account, with its dual tax advantages, is essential despite its limitations. These accounts offer tax relief on contributions and tax-exempt growth and withdrawals, making them an invaluable tool for hopeful homeowners—and a prudent fallback for retirement savings, should the dream of homeownership remain elusive.