Smart Money Podcast – How to Navigate Home Buying and Selling in 2024: Real Estate Prices, Interest Rates and More

Welcome to NerdWallet’s Smart Money podcast, where we answer your real-world money questions. In this episode:

Get answers to important questions and understand your options for buying or selling a home in the rapidly evolving 2024 housing market — and how to time it, or not.

When will homes become more affordable? Is it a buyer’s market or a seller’s market? How can you figure out how much house you can afford? Housing Nerd Kate Wood joins host Sean Pyles with an in-depth analysis of the 2024 housing market, providing strategies for both buyers and sellers to tackle the challenges posed by high mortgage rates and a limited housing supply. They begin with a discussion on the complexities of the current market and the importance of credit-building and budgeting for potential buyers. For sellers, they share tips for making smart home improvements and preparing more generally for selling a home in the current housing market.

Kate also explains mortgage rate locks and discusses recent fluctuations in mortgage interest rates and their impact on the market. She shares a historical perspective comparing past mortgage rate highs and lows, emphasizes the significance of personal timing over market timing when making real estate decisions, and breaks down the role of the Federal Reserve in influencing mortgage rates.

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NerdWallet stories related to this episode:

Buying a House in 2024: What to Expect

How to Put a Ring on It and Save for a House, Too

2024 Housing Trends: Lower Rates, Lower Rents, More Affordability

Have a money question? Text or call us at 901-730-6373. Or you can email us at [email protected]. To hear previous episodes, go to the podcast homepage.

Episode transcript

This transcript was generated from podcast audio by an AI tool.

Sean Pyles:

You could make an argument that it was a terrible, horrible, no good, very bad year for home buyers and sellers in 2023. Not so bad compared to, say, 2022. But high mortgage interest rates and tight housing supply created a lot of complexity for anyone hoping to move out of or into a house last year. So if you want to get into the housing market this year, it's time to prepare.

Kate Wood:

Start or continue building your credit. Do whatever you can to make sure your on time payments, especially rent if at all possible, are making their way onto your credit reports. Request your credit reports because it's free to do and fix any issues or errors. Figure out how much house you might be able to afford starting from your budget.

Sean Pyles:

Welcome to NerdWallet's Smart Money Podcast. I'm Sean Pyles.

Kate Wood:

And I'm Kate Wood.

Sean Pyles:

This episode continues our Nerdy deep dive into your money in 2024. Kate, any plans to buy or sell a house this year?

Kate Wood:

Definitely not for me. I've only owned my home for a couple of years and I am in no rush to do another real estate transaction.

Sean Pyles:

Yeah, I am in the same boat. But we're delighted to have you back on the show as our resident housing Nerd because plenty of people will be looking to move into or out of the houses they own or want to own this year. So what might that look like? Well, Zillow is predicting that houses may become a bit more affordable this year, but it's still one of the most expensive purchases you can make and that's not going to change.

Kate Wood:

Yeah, Realtor.com posed the question, "Is 2024 the year the housing market finally gets unstuck?" And their answer was sort of baby steps in the right direction.

Sean Pyles:

Yeah. Well, what say you, Kate? Any predictions before we get into our look at how to navigate all of this in 2024?

Kate Wood:

I think there are some reasons to feel a little optimistic this year. Maybe not wildly optimistic, but I think 2024 is getting a tentative thumbs up from me.

Sean Pyles:

Okay. Well I do love a tepid endorsement that things will maybe possibly get better in the housing market this year. All right, well, before we get onto some of the specifics, a reminder that we always love to hear what you think, listener. To share your ideas, concerns, solutions around the housing market or anything else, leave us a voicemail or text the Nerd hotline at (901) 730-6373. That's (901) 730 N-E-R-D, or email a voice memo to [email protected]. Stay with us. We're back in a moment with advice on how to survive and maybe even thrive in the housing market this year. So Kate, is it fair to use the word ugly to describe the current home buying and selling market?

Kate Wood:

It's probably not the worst it's ever been, but it's far from pretty, I would say.

Sean Pyles:

Okay. Well, can you give us a sense of where the market is right now? I know that like in politics, all real estate is local and there isn't really a national housing market. The market in Peoria and Albuquerque isn't the same as San Diego or Miami, but how about a 30,000-foot view of how things stand as we start 2024, especially in light of mortgage interest rates that have been pretty high recently. What are you seeing?

Kate Wood:

The good news is that mortgage rates have dropped from what is looking more and more like it was a peak back in October of 2023. That was when 30 year rates topped 8% and then they kind of just started going down. We saw them go down for Halloween, we saw them go down for Thanksgiving, we saw them go down for Christmas, so that was better news. Rates might be lower, but from a buyer's perspective, there are still very few homes on the market. The homes that are for sale are expensive and again, those higher interest rates in general haven't been helping. And a seller looking to relocate is going to face all those same pressures too, assuming that they're buying a new house after selling their current house, unless they're really downsizing or going to a much less expensive market, they're probably going to be buying a costlier home. Not to mention giving up a really plum mortgage interest rate. Even knowing that they're likely to get a strong price for their current home hasn't been enough to turn many homeowners into sellers just yet.

Sean Pyles:

Okay. So what are some of the main factors influencing home buyers right now? And then I'm going to ask the same of home sellers.

Kate Wood:

Lack of inventory, high prices and higher mortgage rates have just been bringing down the vibe for buyers, but there are definitely people out there trying. The horrors persist, but so do home buyers.

Sean Pyles:

Yeah. Okay. Well, what about for home sellers?

Kate Wood:

The headline with sellers continues to be rate lock-in, and this is something that's also sometimes called golden handcuffs. It's basically the idea that folks who bought a refinance when interest rates were at historic lows are now unwilling or potentially even unable to give up those loans. They've got super affordable mortgages and getting rid of a sub 3% interest rate for something that's going to be more than twice that, just doesn't appeal.

Sean Pyles:

Yeah, I'm going to count myself among those people because I do not want to give up the mortgage that I got in 2021. Well, let's take both of those categories and look at how they can be most effective this coming year. I'm sure some of it is the same rules as always. The basics don't change, of buyers needing good credit and down payment money and sellers needing to price correctly. But let's start with buyers and I'd like you to give us three big things potential home buyers should be doing with their finances right now as they look toward possibly making a purchase this year.

Kate Wood:

Okay, I'm not counting, this might be more than three because there are a few basic steps that it's never too early to get started on whether buying a home is your this-year goal or it's just a someday-goal, something that you're hoping to do at some point in your life. A big one is just to start or continue building your credit. Do whatever you can to make sure your on-time payments, especially rent if at all possible, are making their way onto your credit reports. Request your credit reports because it's free to do and fix any issues or errors that you spot. Figure out how much house you might be able to afford starting from your budget. Think about what would be a comfortable monthly mortgage payment for you. And remember, mortgage payments include a lot of stuff, principal and interest, but there's also property taxes, homeowners insurance, probably mortgage insurance and depending where you live, maybe HOA fees.

Sean Pyles:

Well, Kate, that question of knowing how much house you can afford is a little tricky to figure out. How do you recommend folks do that?

Kate Wood:

There are a couple of different ways you can do it. There are simple napkin calculations like the 28/36 rule, but on NerdWallet we do have a how much house can I afford calculator, and that will walk you through different aspects of your budget to give you a sense of what you might be working with. And if you don't currently have a budget, obviously no time like the present to make one. You can also start saving up for a down payment and to begin, figure out what kind of mortgage you're going to use and then you'll know what the minimum down payment is going to be. For a conventional loan, which is by far the most common loan type in the U.S., it's 3%.

If you're building your credit and you need to go for an FHA loan, it's 3.5%. And if you're a current or former service member and you qualify for a VA loan, you aren't required to make a down payment at all. The other advice that I always make sure to give people is to research first time homebuyer programs in your state and also check if there are any city or county funds that would be available to you too. These can be low interest loans or outright grants, so that's free money. And if you can qualify, that can help you with your down payment or your closing costs.

Sean Pyles:

And I really want to emphasize that point around first time homebuyer programs because a lot of people might not realize that these programs are available or they might think that they earn too much to qualify for one. And to that, I say Google it, you might be surprised by what's available for you.

Kate Wood:

Absolutely. I mean, these are some things that I feel like people miss out on simply because they aren't aware of them or like you said, if they are aware of them, they think, oh, this isn't really for me. One thing that's also really worth calling out is that these programs almost always consider you to be a first timer if you haven't had an ownership interest in a home in three years. So that means even if you used to own a house with someone or used to own a house on your own, now you're renting, you could still potentially qualify for first time homebuyer assistance.

Sean Pyles:

Okay, so everyone Google it if you don't think you might qualify for one of these programs, you again really might be surprised. Now let's talk about the other end of the transaction, home sellers. Three big things that they should be doing to prepare their finances and their homes.

Kate Wood:

Well, their homes is a good point. Sellers usually don't need to do as much financially 'cause they can usually use part of the profits from the sale of their current home to cover the down payment on their next place, but you should still make sure your financial house is in order, since getting a new mortgage means qualifying for a new mortgage. Be sure your credit is strong, make sure your debt's in check, all that kind of stuff. Just because you have been current on your mortgage, you've been paying that every month, that doesn't automatically mean you're good for a new loan. You also might want to start chipping away at any big projects that'll make selling or just moving easier. So plan a big spring-cleaning.

If there are any larger projects that you might need to get your house in shape to put it up for sale, start researching contractors or tradespeople, start getting quotes from them, because yeah, even if it is a seller's market, and it definitely still is a seller's market, it makes sense to cater to buyers a bit. I mean, you want to get the best possible price, right? And when you're thinking about different stuff that you can do, don't underestimate the power of fairly simple upgrades, like a fresh coat of paint, cleaned up landscaping, and how much more appealing that can make your home. It's also probably a good idea to start researching real estate agents too. If you haven't sold before, know that selling is pretty different from buying, so you probably don't just want to default to the agent who helped you buy your home.

Sean Pyles:

All right, well, we know from surveys that a lot of potential home buyers have been sitting on the sidelines because of mortgage interest rates hoping that they'll go down. But isn't it also true that when those rates start to come down, as we've seen in the past month or so, that may create more demand in the market and prices could rise, you could see potentially a return of bidding wars. So isn't it kind of a balance game where you can either pay a higher rate now or you could have to pay more for the house itself if rates drop?

Kate Wood:

I have definitely heard that exact argument from some housing market experts. And yes, simple supply and demand economics would imply that if more buyers enter the market, prices should rise. But other folks have been saying that because home prices remain so elevated in so many places, there just isn't much room for prices to go higher. And when buyers have reached their limits, something has to give. And that's something that we really saw toward the end of 2023 in the last quarter of the year. Almost every market prices going up and the places in the country where prices had gone down, there were some cities on the West Coast where prices had gone down, they've basically gone right back up.

Sean Pyles:

Okay, well give us some historical context here. When we're looking at mortgage rates in the 8% realm, as we saw last year, historically they've been much higher than that, haven't they? But we've gotten used to the post-financial crisis and pandemic rates of like 3%. So it's hard to pull the trigger on something with a higher rate.

Kate Wood:

Absolutely. I mean, if you were even remotely considering buying a home during that kind of cheap money moment or people who did, it's really hard to let that go. But at their highest back in 1981, mortgage rates were over 18%. Overall, though, that period in the very late 1970s, early 80s was exceptional. At the same time though, what we just saw during the pandemic was sub 3% mortgage rates in late 2020, early 2021, that was also an outlier. So these numbers that I'm quoting come from Freddie Mac, it's one of the government sponsored enterprises that backs mortgages and also they collect mortgage rates, publish them, and they're sort of widely used as the yardstick of where mortgage rates are.

So since 1974, which is when Freddie Mac started gathering these rates, on average the 30-year fixed rate has been 7.75%. So what we were seeing last fall was really close to that historic average. But for a buyer now, it's hard to care what rates were like in the 1970s, but at the same time it might be easy to care a little too much about what rates were doing a couple of years ago.

Sean Pyles:

And of course there's no guarantee that rates won't go back up, although the Fed did indicate at the end of 2023 that it's expecting up to three cuts in interest rates this year. But timing a jump into the housing market is kind of like trying to time the stock market. It's a bit of a fool's errand.

Kate Wood:

Yeah, it kind of is. Although, let me digress and talk about the Fed for just a second. So the Federal Reserve is cutting one specific interest rate that has a sort of ripple effect out to a lot of different aspects of the economy. Yes, what the Fed's doing is one thing that determines mortgage interest rates, but there are a lot of other ingredients in that stew. So don't put too much weight on Fed actions if you're really, really watching mortgage rates. That said, on the home team at NerdWallet, we always say it's about when it's the right time for you to buy a home. So not what the market's doing, not what the Fed's doing, not what might happen in three months or six months or a year, but where are you in your life? Where are you financially? What is going on with your job, with your family, with your relationships? Are things lining up for you? If it's the right time for you, then go ahead. Go for it.

Sean Pyles:

Yeah, trying to time the market, whether it's the housing market or the stock market, is always a risky game with no certainty of a payoff. In fact, if you wait for some magical time when the market is, quote unquote, 'better' or your finances are, quote unquote, 'perfect,' you might actually find yourself unable to buy a house for some other reason that might pop up. So given all the uncertainty around the housing market right now, what is your primary advice to folks who are mulling a move? How do you manage that uncertainty and make the best decision for you and your family?

Kate Wood:

Really, I would have the same piece of advice. Does a move make sense for you? At these prices and interest rates can you afford the area that you want to move to? Is it a good time for you? And not just you but your family. So with where the different people in your family are in their career, in their schooling, whatever needs your current home isn't meeting, are you going to be able to find and afford all of that elsewhere?

Sean Pyles:

I also want to talk briefly about a court decision from late last year that some housing market observers say could eventually change the landscape of home buying. This was the case involving the commission earned by real estate agents and whether the system that most home buyers and sellers use is subject to collusion. Can you briefly review that jury decision for us and how the results might play out in 2024?

Kate Wood:

This is really an evolving story, but yes. So back in October 2023, a federal jury in Kansas City ruled that the National Association of Realtors, which is the largest trade association in the United States, pretty much all real estate agents are part of it, stifled competition by requiring home sellers to pay non-negotiable buyer's agents commissions. So the jury assessed damages of almost $1.8 billion against the NAR and two brokerages that were co-defendants. There were two other brokerages as well that settled for substantial damages before the trial and the NAR has said that they're going to appeal that ruling, but there's a similar antitrust case that's set to begin in Illinois as well as class action suits that have been filed in other states. If these go through and if that initial ruling is upheld, that could upend how buyers and sellers work with real estate agents. Right now for first time home buyers, not having to pay their buyer's agent's commission is a huge help.

That's a big chunk of money and that's one less thing they have to pay at closing. Should these be upheld, we might see more buyers and potentially sellers too, trying to do real estate transactions without agents and agents themselves might have to start working differently, maybe charging hourly instead of what they do now, which is a flat percentage based fee. Again, though, this is something where we have to wait and see. The appeals and the cases could take years to work their way through the courts, let alone for us to see changes in day-to-day home buying and selling.

Sean Pyles:

All right, so things aren't going to change overnight.

Kate Wood:

Definitely, no.

Sean Pyles:

Okay. So Kate, as we sit here in January, is it at all possible to say whether 2024 will be a buyer's market or a seller's market?

Kate Wood:

Realistically, with the way things are in the U.S. it's still going to technically be a seller's market, but there is potential that this year is going to be kinder to buyers than it's been for a while.

Sean Pyles:

Well, for all of the would-be buyers out there, let's hope so.

Kate Wood:

So Sean, tell us what's coming up in the final episode of this series.

Sean Pyles:

Well, Kate, we are going to talk all about credit card points. No need to get out your calculators. We will be reviewing best practices for both earning and utilizing all of those points for free nights, free flights, and more.

Erin Hurd:

My guidance is generally pretty similar for most people, even if they have pretty different travel goals. And that all really goes back to the idea of just earning flexible points. If you have a stash of flexible points that aren't locked into any one travel brand, you have a lot of options.

Kate Wood:

For now, that's all we have for this episode. Do you have a money question of your own? Turn to the Nerds and call or text us your questions at (901) 730-6373. That's (901) 730 N-E-R-D. You can also email us at [email protected]. Also visit nerdwallet.com/podcast for more information on this episode. And remember to follow, rate and review us wherever you're getting this podcast. And tell a friend.

Sean Pyles:

This episode was produced by Tess Vigeland and Kate. I helped with editing. Mary Makarushka helped with fact checking. Kaely Monahan mixed our audio. And a big thank you to NerdWallet's editors for all their help.

Kate Wood:

And here's our brief disclaimer. We are not financial or investment advisors. This nerdy info is provided for general educational and entertainment purposes and may not apply to your specific circumstances.

Sean Pyles: