Here’s why 2024 will be 'the year of hunkering down'
Mikaela Arroyo of John Burns Research says homebuyers will prioritize affordability over 'bells and whistles' and accept smaller homes that meet their needs.
- Buyers are willing to give up extra space and fancy tech in order to purchase a house they can actually afford.
- New construction will likely keep getting smaller into next year as builders ramp up deliveries.
- The “sweet spot” for interest rates appears to be between 5.5% and 6%.
While interest rates have dropped significantly in just the last couple of weeks, it's still anyone's guess what kind of economic environment homebuyers and sellers will be facing next year.
Despite the uncertainty, John Burns Research and Consulting has published a list of 24 trends they predict for 2024 in new construction, home design and consumer behavior.
The main theme is that 2024 will be "the year of hunkering down," Mikaela Arroyo, VP and chief of staff for the New Home Trends Institute at John Burns Consulting, told Real Estate News. "We think next year is going to be very cost-focused, with how unaffordable homes are, and then you add in the economic ups and downs and the fact that it's an election year."
'Bells and whistles' take a back seat
Unlike the pandemic era, when having extra space and state-of-the-art filtration systems was a top priority, 2024 will see buyers becoming much more pragmatic. "A lot of people are really focusing back on the basics … and talking a little bit less about some of those bells and whistles," Arroyo said.
This means forgoing a big yard, an extra room for fitness and the home automation that was so popular just a year or two ago. Instead, the typical buyer will be looking to trim the fat from their home search.
"We have some people even dropping the garage and a lot of people removing formal dining," she explained. "So what spaces can you completely remove from the house to make it more affordable?"
Home sizes will keep shrinking
The size of the typical new home has been decreasing in the last year or so as builders try to keep prices down and keep inventory moving, and this will continue in 2024, Arroyo predicts.
This is especially important for younger and first-time buyers without substantial cash savings or home equity.
"For younger consumers, they actually felt that new construction was a better value relative to resale, and their reasoning was with all of the incentives and rate buydowns that builders are offering, you can get a new home at a reasonable price to a resale home," Arroyo said. "Maybe it's on a slightly smaller lot size, but it has all the features they care about."
Cautious consumers seeking rates of 6% or lower
Right now, buyers are still cautious about making a home purchase, particularly as interest rates remain volatile. High rates have a big financial impact, but there's a psychological one too: Consumers are "afraid of buying at the wrong time," Arroyo said.
Agents can help educate buyers and provide emotional guidance — "being a counselor has become a bigger part of the job," Arroyo said — but consumers still have deeply rooted perspectives on where rates should be, considering the lower interest rate environment of the last 20 years.
Arroyo said her team has surveyed consumers about the highest mortgage interest rate they'd be willing to accept and what they believe is the historically normal rate.
"The number that keeps bubbling to the top, it's about 5.5% to 6%," Arroyo said. "That's the number that they're willing to go to. That's the number they now think is historically normal. That seems to be the sweet spot for rates where the consumer is looking."