- This CEO was the most accurate home price forecaster in 2023. Here's what he expects for 2024
This CEO was the most accurate home price forecaster in 2023. Here's what he expects for 2024
The vast majority of housing analysts I spoke with thought that the price correction would carry over into 2023. Not Nik Shah.
In the second half of 2022, national home prices experienced a mild correction as a rapid shift from 3% mortgage rates to over 6% destabilized a housing market that had just seen a rapid run-up in home prices during the Pandemic Housing Boom.
The vast majority of housing economists I spoke to at the time thought that this correction would carry over into 2023 and that national home prices would fall for the year. However, that didn't happen. Depending on the index you look at, national home prices rose somewhere between 3% and 6% last year, aligning closely with the historical average.
Nik Shah, CEO of Home.LLC, is one expert who wasn't surprised. In November 2022, he told me that analysts at his firm were forecasting that national home prices would rise +4% in 2023, with a bull case of +6%. They were right, but will they be right again in 2024?
Q: Heading into 2023, numerous housing economists predicted a decline in U.S. home prices, with some models forecasting a multi-year correction leading to a 10% to 20% peak-to-trough decrease. In contrast, your forecast anticipated a 4% rise in U.S. home prices for 2023, which turned out to be the most accurate among nearly 20 economists I consulted while still working at Fortune Magazine in late 2022. How did you get it right?
Home prices increased in 2023 primarily due to low supply of inventory and steady demand for homes despite record unaffordability. While home prices did correct in some markets, national home prices grew in 2023, exactly as we had predicted.
Like many housing economists, we foresaw a decline in demand for home purchases. However, our prediction was better than everyone else because our AI showed that the decline in supply would outpace the decline in demand.
We projected that the supply of inventory would be really low due in early 2023 because 92% of borrowers were locked under a 6% rate in late 2022. Plus, borrowers have been the largest source of supply in the past few decades.
We predicted this “lock-in” effect from increasing interest rates way back in November 2021, because our AI modeled scenarios going back 50 years, especially the tumultuous 1970s.
Q: While months of supply have risen since the pandemic lows in 2021, we're still below 4 months of supply. Why do you think the mortgage rate shock didn't translate into a greater uptick in active listings?
The mortgage rate shock didn’t translate to increased supply of listings, because there are only 3 sources of supply and they’re all constrained.
New construction, which is led by large builders, offered many incentives like mortgage rate buydowns to pre-sell inventory leading to rise in new home sales.
Most delinquencies, which were still very low, did not convert to foreclosures as owners with positive equity were incentivized to sell their homes during pre-foreclosure
Q: Tell me a little bit more about Home.LLC. What are your main verticals, and how do you plan to expand in 2024?
My goal with Home.LLC is to build the home of homeownership. We help people analyze, buy, sell, borrow, and invest in homes. Our 3 core verticals are
HOME Analytics: Use our AI to analyze the entire housing market. Project appreciation and rent for your target homes.
HOME Agent: Buy your home online and get cash-back up to 50% of our commission. Additionally, sell your home by listing it for as little as $99.
HOME Equity: Homeowners can borrow up to $500,000 from home equity in exchange of $0 in monthly payments up to 30 years. On the other end, investors can get up to 20% annual returns from investing in homes.
Our main focus for 2024 is to keep scaling our operations to meet overwhelming customer demand.
Q: When it comes to U.S. home prices, what are you forecasting for 2024? How do you expect the U.S. housing market to look this year?
Barring a black swan event, we predict that the housing market in 2024 will appreciate more than 2023. We project a 4% to 7% increase in the Case-Shiller home price index in 2024 because:
Falling [mortgage] rates will increase demand: Our AI projects a 5 million increase in homebuyers for every 1% drop in rates. In contrast, there are less than 1.5 million homes listed for sale.
Housing supply will remain lower than demand. For resales, our AI projects that decreasing rates will increase demand way more than increasing supply. Plus, there’s a 11% annual drop in construction of single-family homes. Plus, increasing unemployment won’t materially increase delinquencies because the credit quality and home equity of most borrowers is pristine.
While we are bullish about the national home price index, we are still bearish about metros like Austin, Boise, and Denver, as we have been since 2022.
Q: Are there still downside risks when it comes to home prices? And how do you see that shifting through the next decade?
While we are bullish about home prices in the 2020s, we are still bearish about home prices in the long-term unless immigration compensates for declining birth rates.
In the 2030s, [housing] demand will start falling because Gen Zs will make a smaller cohort than Millennials plus will face a steeper affordability challenge.
At the same time, supply will increase as boomers age.
Q: Historically, housing affordability is fairly strained right now. That'll happen when mortgage rates nearly triple just after U.S. home prices soared over 40% during the pandemic boom. Is there a path to restoring affordability, and what does it look like?
Everyone wants affordable housing, but no one wants their own home to suddenly become affordable.
In the roaring 20s, affordability might improve but won’t be fixed.
A significant change in zoning is unlikely because it's actively backed by most homeowners, who make up two-thirds of the entire population. Building more homes doesn't necessarily lower home prices because the costs of construction—land, labor, and materials—keep increasing as home prices keep increasing. ADUs and modular homes sound promising but haven’t seen mass adoption for a multitude of reasons. Even Congress can’t fix affordability for everyone.
Many are praying for a housing market crash. Even if there’s a massive home price crash, will the Fed and Congress just sit idle? Also, in that event, who is more likely to quickly scoop up homes: Wall Street or Main Street?
Nothing in this newsletter is investment advice. Please do your own research.