Homebuyers could be seeing some reprieve from high interest rates going into 2024, although housing prices are expected to remain around where they are in the current market.

While a massive drop in interest rates is unlikely, buyers can expect a modest decrease in interest rates in 2024.

“Hopeful home buyers are getting a welcome holiday gift: declining mortgage rates,” Robin Rothstein and Caroline Basile wrote for Forbes. “Since hitting a 2023 high in late October, the average 30-year fixed rate has receded by over half a percent.”

The good news about interest rates comes as first-time homebuyers will still confront a difficult market. “First-time buyers hoping to hand a home at a lower price point are likely having the hardest time as affordability conditions continue to deteriorate, according to NAR,” Forbes reported.

In other words, for buyers across the U.S. with a median household income or lower, it might be tricky to find a house in that price range.

Here’s a look at what this means for Utah homebuyers.

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Experts on 2024 housing market forecast in Utah

Dejan Eskic, senior research fellow at the Kem C. Gardner Policy Institute, told the Deseret News that buyers can expect drops in interest rates, but not substantial changes when it comes to housing prices.

“We got some great news this week from the Fed saying they expect rate cuts in the next year. And so, in a matter of a few weeks not, we’ve seen interest rates drop almost a whole percentage point, which is huge for affordability,” Eskic said in an interview on Friday.

But even though the rates are dropping, they likely won’t be pre-pandemic levels.

“I think it’s plausible to assume that they’re gonna stay in the sixes and by the end of the year, we could even see fives,” Eskic said, explaining that there could be more economic stability in 2024.

These lower interest rates could also impact the number of homes built across the U.S. “It should be easier for builders as rates go down, as they need to borrow to build,” Jessica Lautz, deputy chief and vice president of research at the National Association of Realtors, told CNBC. It’s unclear what will happen in Utah on this front.

Eskic predicted that housing prices in 2024 would stay flat. “I don’t think you’ll see anything significant in terms of price change up or down,” he said. It’s possible that they could fluctuate up and down by one percentage point.

A Zillow report from late November 2023 showed that the average value of a home in Utah is $502,647, which is down 1.2% from 2022. In the current market, over half of homes have sold under listing price and $481,703 is the median sale price.

Though the modest decrease is positive, many Utahns are priced out of buying a home.

“Only 15% of Utah’s renter households have enough income to purchase a modestly priced $300,000 to $400,000 home,” Wood and Eskic wrote. “High interest rates and housing prices will continue to exclude a growing share of renters from home ownership.

To afford a home at that price, Wood and Eskic indicated that the household would have to have an income of roughly $100,000 to $130,000. For context, the median household income is $79,133, according to Utah’s Department of Workforce Services.

The drop in interest rates is promising, but it may not be enough to compensate for high home drops. A 0.5% to 1% drop in interest rate translates to saving a couple hundred (it could be more or less, depending on home price and down payment) on a mortgage.

On a house priced at Utah’s exact average value of a home with a 20% down payment, a buyer with a 7% interest rate would look at paying around $2,675 a month on principal and interest alone. With a decreased rate of 6%, a buyer would pay just over $2,400 each month. The couple hundred dollars in savings each month might make a difference for some buyers, but plenty will still be priced out.

Due to Utah’s high housing prices (seventh in the country, Eskic said), homeowners are not as likely to sell their homes, especially if they secured them at a time when interest rates were lower. “The incentive to move and to sell your house is very low and so, you’ve taken out a huge buyer pool.” This has an impact on supply and demand.

Utah ranks in top 10 most ‘difficult’ states for first-time homebuyers

In an attempt to remedy Utah’s housing affordability issue, Gov. Spencer Cox announced that he will try to build 35,000 starter homes by 2028.

“The fact is, the single greatest threat to our future prosperity, the American dream and our strong communities is the price of housing,” Cox said. “Our kids will never be able to call Utah home if we don’t start building starter homes again.”

The housing shortage, lower interest rates and stagnant prices present mixed prospects for the Utah homebuyer.

On the one hand, lower interest rates means a lower monthly payment, but the home prices still mean many Utahns cannot afford to buy in the first place.

Across the U.S., experts are optimistic about the direction of the housing market.

A Redfin report predicted that house prices would drop by 1%, there would be an increased supply of homes on the market, mortgage rates would drop slightly but remain above 6% and home sales would increase.

Due to unpredictable factors such as the presidential election and foreign wars, Daryl Fairweather included an upside scenario and a downside scenario in the Redfin Report.

“Upside scenario: Weekly average 30-year fixed mortgage rates drop into the 5% range. That could happen if the U.S. economy falls into a recession. While higher unemployment would drag down demand, the effect of lower mortgage rates would outweigh that effect, pushing prices up by about 3% and sales up to about 5 million,” Fairweather wrote.

The downside scenario would involve rates upward of 8% and home prices falling by around 5%, according to Fairweather.