Every day when I meet with clients and friends I get asked “Will the Real Estate market crash in 2024?”
This blog post is here to help you understand how the market works so that you can ask good questions when you are meeting with a real estate professional on how the market is doing at any given time.
The real estate market is influenced by a multitude of factors, including economic conditions, interest rates, housing supply and demand, government policies, and global events, all of which can change over time.
To understand the future of the real estate market, it's essential to consult experts, such as economists, real estate analysts, and industry professionals who closely monitor market trends. They can provide insights based on the current economic conditions and historical data.
In general, the real estate market is similar to other markets in that it works on supply and demand. Supply and demand are fundamental concepts in economics that describe the relationship between the availability of a good or service (Homes) and the desire for that good or service (Buyer demand). These concepts play a crucial role in determining prices and quantities in markets.
Here's how supply and demand work in the residential real estate market:
Supply:
Supply represents the number of homes that are available for sale at various prices over a specific period. The supply of homes is influenced by many factors such as unemployment, interest rates, changes in family status, new construction costs, job transfers, resource availability, and other government regulations. The supply curve typically slopes upward from left to right, indicating that as the price of a home increases, sellers are generally willing to supply more of it. To understand how much supply of homes is available on the market at any given time we look at a key indicator called the Month Supply of Inventory or (MSI). MSI provides an indication of how many homes are available for sale versus how many homes have recently sold in a given month. Traditionally in our Maryland area, we see seasonal increases in the supply inventory (Spring and Summer) and decline in inventory (Fall and Winter). The MSI can be assessed at various levels of the market and it provides a hyperlocal view of how the real estate market is trending in a particular neighborhood, city, or county.
Demand:
Demand represents the number of buyers who are willing and able to purchase at various prices over a specific period. The demand for homes is influenced by factors such as interest rates, capital, location, schools, rental rates, changes in family status, employment changes, and more. The demand curve typically slopes downward from left to right, indicating that as the price of homes decreases, more buyers are generally willing to enter the market to buy a home. For this reason, it is important to look at a key indicator called the Home Demand Index or (HDI). HDI shows buyer interest in the market and it can be assessed at various levels of the market. The HDI can be used to provide a hyperlocal view of how the real estate market is trending in a particular subdivision, neighborhood, city, or county.
Buyer’s Market Vs. Seller’s Market:
The intersection of the supply and demand curves determines the equilibrium price and quantity in a market. At the equilibrium price, the number of homes supplied equals the quantity demanded. This means that the market is in balance, and there is neither excess supply nor excess demand. The term buyer’s market indicates that the supply of homes exceeds the demand for homes, in a buyer’s market the buyers have the negotiating power, and home prices generally drop or stay very stable with little to no increase. The term seller’s market indicates that the demand for homes exceeds the supply of homes and the seller has higher negotiating power, home prices generally go up during a seller’s market. A month's supply of inventory (MSI) between zero and two months is an indication that the market is a seller’s market. A three-month supply of inventory is an indicator of a balanced market. Anything above a three-month supply of inventory indicates a buyer’s market.
Shifts in Supply and Demand:
Changes in factors that influence supply or demand can shift their respective curves. For example, an increase in consumer income can shift the demand curve for luxury homes to the right. Shifts in supply or demand can result in changes in both the equilibrium price and quantity of homes for sale. For instance, if there is an increase in demand for a particular neighborhood, the price and quantity sold may both rise.
Conclusion
So, will the real estate market crash in 2024? The answer to this question depends on multiple factors. Real estate markets can vary significantly by location, so it's important to consider regional and local factors when evaluating market conditions. If you have specific concerns or interests in the real estate market, it's advisable to seek guidance from professionals who specialize in the area of your interest. Equipped with the knowledge you’ve gained from this article you will be able to ask good questions and stay informed about relevant economic and market developments.
