Affordability will stabilize, and possibly improve
The new “starter home” will be a single family rental
Urban core rental demand will surge
Home buyers will have to compete with flippers
AI will transform the home buying experience
By and large, we agree with these predictions. So, why are we surprised? Here’s our take on the 2024 Zillow predictions as they applies to the Seattle area housing market.
Previous Zillow Predictions
When it comes to market predictions, Zillow has a dubious track record. Let’s start with the low hanging fruit.
Zillow’s iBuying program, Zillow Offers, was a spectacular misstep, showcasing their inability to accurately predict housing market trends. Initially, Zillow aimed to revolutionize real estate by buying homes directly and reselling them. However, their algorithms, touted for predicting market prices, failed miserably. They overpaid for houses and couldn’t sell them without significant losses. By late 2021, the program collapsed under its own weight, leading to a $500 million loss and 25% staff reduction.
As we’ve previously shown, Zillow’s proprietary home valuation tool has a notorious track record of inaccuracy. Zestimates often come in 5, 10, or even 20% off of true market value, which can be a difference of $100,000’s. Zestimates are so inaccurate that most real estate agents agree it actively harms home buyers and sellers by misleading them as to their home’s worth.
Zillow Predictions for the 2023 Market
We won’t quibble with all of these, but two flops do stand out. First, Zillow predicted that housing affordability would improve in 2024. To be fair, many in the industry shared this wishful thinking (but not us). In reality, home affordability rose every month in 2023. Wishful thinking does not reality make.
Similarly, we think Zillow overshot the mark when it predicted that rents would exceed cost of ownership. The company predicted that 2023 would see more homeowners renting out their properties because the value of renting would exceed their cost of ownership. This was simply not the case, at least in the Seattle market. Rents of certain homes have risen, but they have not kept pace with home ownership costs, much less overtaken them.
What to Expect in 2024
Let’s break down Zillow’s six major predictions for the 2024 housing market.
Housing inventory will rise
Zillow predicts that housing inventory will rise as homeowners begin to see that rates aren’t falling any time soon. While true, we caution any would-be buyers from getting too excited by this news.
Setting aside for the moment all those homeowners who sell because they have too–whether due to work changes, death, foreclosure, etc–we recognize that the vast majority of homeowners are hesitant to sell because they don’t want to give up their ultra-low interest rates. If rates go down, then there will, naturally, be a slight easing of the pressure valve with more of these homeowners choosing to sell. But the pent up supply will be outstripped by new demand. In other words, more buyers will enter the market than sellers. Thus, any increase in inventory will have at best a mild salutary effect on buyers, as increased competition drives up prices.
Affordability will stabilize, and possibly improve.
Zillow predicts that the cost of homeownership will remain relatively steady or decline slightly, while wages and savings will improve. Interestingly, the Fed views wage improvement as commensurate with inflation, which it is trying desperately to diminish. If the Fed sees wages rising too fast, it is likely to halt or delay any rate decreases, which will negatively impact affordability. But, I digress…
Zillow’s milquetoast prediction is likely accurate. There will be no panacea for buyers until rates dip below 5%, which, mark our words, will not happen in 2024. For context, as of December 14, 2024, the average new 30 year fixed mortgage is 6.95%. If and when rates drop below 6%, there will be a significant easing of inventory and some improvements to affordability, but it will still be a strong seller’s market.
The new “starter home” will be a single family rental.
This is the spicy stuff. Zillow predicts that many homeowners will choose to rent their single family residences when they move out, rather than sell. This, means that single family inventory will include a higher percentage of rentals than ever before.
I’m skeptical. While it’s true that some homeowners are likely to keep their residences as rentals, the reality is most people cannot afford to buy a new home without selling their existing home. Further, in our experience, the vast majority of first time homebuyers in King County are moving from apartments, not single family homes. It would take a sea change of substantial proportions to shift this ratio.
In the end, we think Zillow plays the “shock factor” game with this prediction. If you asked us on one of our more cynical days, we might even say be on the lookout for Zillow to push some sort of rent-to-own program in the coming months and years…
Urban core rental demand will surge.
This one is self-evident. Covid was an aberration, an anomaly. With the return to normalcy, and to work, urban core housing demand has risen. Seattle’s urban revitalization has been slower than we’d hope, but, still, we do expect this trend to continue into 2024.
Home buyers will have to compete with flippers.
Everyone and their mother fancies themselves a home flipper these days. We’ve seen countless fly-by-night flipping operations pop up in the last few years. Zillow predicts that this trend will continue. Buyers are coming to grips with the reality that they need to target homes with room for improvement in order to get what they want. This will bring them into competition with the would-be flippers, who target the same homes for potential resale profit.
We doubt this will be a major problem in the Seattle market. Profit margins for most flippers are simply to0 thin to compete with putative homeowners. If anything, flippers will look for more off market deals, as opposed to competing directly with consumers for on-market listings.
AI will transform the home buying experience.
Get Happy at Home intends to be at the forefront of AI use in home sales. Still, we’d be lying if we said we knew just how much things are likely to change in 2024. Our guess: home selling and buying will probably look the same as it ever has for most people, at least in the near term. AI influenced changes are likely to be marginal in 2024, not transformative. In the long term, anything is possible. Stay tuned for more!
Take Advantage of the 2024 Market
Whether you’re a buyer, seller, or both, 2024 will be a better year than 2023. If you’re ready to take the leap and enter the market, we’re happy to offer our advice as experienced local agents. Let us know how we can help!