Is Real Estate Still a Reliable, Inflation-Proof Investment Heading Into 2024?

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In 2023, it’s been off to the races as everyone pondered: What will climb higher, faster—mortgage rates or home prices? Typically, the two work inversely and help offset one another, but in an unprecedented circumstance, both mortgage rates hit record highs as housing prices continued to swell. However, nearing the end of 2023, the race’s direction seems to be slowing and taking a turn, as mortgage rates have trended downwards and quickly. 

This series of events begs the question: Will real estate still be a worthwhile, inflation-proof investment in 2024? Short of shaking our Magic 8 Ball, we’ll look at informative statistics and review what experts expect moving forward. That way, you’ll be able to make an informed decision about whether to invest in real estate in the coming year. (Spoiler alert: It’s looking good, and you’ll soon see why.) 

Let’s Talk About Now: The Current Market 

Before we dive into the future, let’s talk about what we know now by reviewing some key housing market statistics provided by the National Association of Realtors (NAR):

• Median home sale price: In September, the median existing-home sales price increased by 2.8% year over year to $394,300 (the third consecutive month this number rose).
• Housing inventory: At the end of September, 1.13 million units were registered, signaling a 2.7% uptick from August but an 8.1% decrease from a year prior. At the current sales pace, unsold inventory sat at a 3.4-month supply (up from August at 3.3 months). 

As you may know, the housing market is highly dependent on the Federal Reserve’s (the Fed) set rate, which has been high as the Fed continues raising it to combat high inflation rates. 

Since interest rates kept rising, borrowing costs (mortgage rates) were considered too high, squeezing the market for homebuyers and dissuading existing homeowners from making a sale that would forgo their locked-in lower rates. 

As of October 2023, the inflation rate was 3.2%, which was still higher than the Fed’s desired rate of 2%. But, as the inflation rate has been growing slower than expected, many believe that the tide will shift and that the Fed has finished raising rates. 

Moving into 2024, with mortgage rates expected to cool, Lawrence Yun, chief economist at the NAR, said in a press release, “Retreating mortgage rates will bring more buyers and sellers to the market and get Americans moving again.” He predicts home sales will rise by as much as 15% next year. And that’s great news for real estate investors. 

Moving Forward: As Mortgage Rates Decrease, Demand Climbs

As the calendar moved from October to November, interest rates rapidly receded after rising so quickly. With mortgage rates declining, mortgage demand moved in the opposite direction. 

On Nov. 15, the Mortgage Bankers Association reported that mortgage demand reached its highest levels in five weeks, rising by 2.8% over the prior week. Marking the second week of gains, the 30-year mortgage rates sank to 7.77%, its lowest level in roughly two months.

In 2023, mortgage rate volatility continued to make headlines, and rightfully so, because the rise and subsequent fall happened quite literally overnight. Mortgage rates fluctuate so much because they depend on many ever-changing variables, including: 

• The bond market
• The Fed’s interest rate and monetary policy 
• Mortgage demand 
• Housing inventory, construction supply, demand, and costs 
• Mortgage lender competition 
• 10-year Treasury yields
• Fed policy
• Consumer spending 
• Current employment rate 

Along with macroeconomic considerations, personal borrower factors also determine what mortgage rate a lender is willing to offer, which is all based on the borrower’s level of risk. A few factors that shape the mortgage rate for homebuyers include:

• The home’s location
• The price of the home 
• The borrower’s credit score and history 
• Loan term 
• Interest rate type (fixed or adjustable)
• Down payment amount
• Loan-to-value (LTV) ratio 
• Debt-to-income (DTI) ratio 

To Cut or Not to Cut: Expectations for the Fed Rate in Mid-2024 

As the housing supply remained relatively low and prices/mortgage rates were sky-high, the market favored sellers, who held the upper hand. Many homebuyers were priced out, waiting on the sidelines for the situation to shift. Experts and economists predict that mid-2024 will be the time at which everything will change. 

Per the CME Group’s FedWatch tool, “Investors predict the Federal Reserve will cut rates in June, September, and December 2024.” Along with spurring homebuyers to enter the market, given the lower interest rates, the overall economy stands to gain from this forecast. 

Lowering interest rates means that the cost of borrowing money is lower, too. As a result, consumer and business spending is boosted, stimulating economic growth. 

The U.S. government shared a report on consumer prices in October, which depicted that the Consumer Price Index saw a 3.2% rise year over year after having risen by 3.7% in September. Along with slowing inflation rates, economists expect rising interest rates to be behind us. 

A Look at the Real Estate Market in 2024, and Historically as an Investment

Lower mortgage and interest rates usher in an era of higher demand on behalf of buyers, developers, and investors. With lower borrowing costs and more affordable construction supply costs, the supply of homes on the market is also set to increase. 

As a result, the housing shortage, high mortgage rates, and high prices that have plagued the real estate market in 2023 can be expected to be tempered in 2024. When homebuyers face these upsides, real estate investors do, too.  

As a real estate investor, you’ll have greater negotiation power to purchase real estate at lower costs than the listing price. Lower interest rates also translate to higher demand, spurring higher home prices for resale. 

This is good news because real estate has historically been a high-yielding investment choice. Here are a few reasons why real estate investing provides such a strong return on investment (ROI):

• Inflation-proof: Compared to a traditional bank account, real estate is much more resistant to inflation. As inflation rates rise, so do rental prices, meaning that you can earn a steady income even with economic fluctuations. 
• Diversification: By investing in income-earning assets, you have the power to diversify your portfolio. To maximize returns, you can spread your investment across different properties to mitigate potential losses. 
• Long-term growth: Real estate investing positions you for long-term growth. When the cost of homeownership rises (i.e., mortgage rates), the price for rentals increases as the demand for renters grows in response. 
• High returns: Bank accounts, whether checking or savings, tend to offer low interest rates or no interest yield at all, no matter the principal amount. Real estate tends to deliver higher average annual returns. 

Launching Your Real Estate Portfolio

The future for real estate investment looks bright. Even if you’re looking to get started as a real estate investor for the first time, you should know that the market is accessible to everyone, not just those who can afford to purchase and manage entire properties. 

You can begin investing in the market with Connect Invest. Connect Invest offers short-note investment opportunities in both residential and commercial real estate sectors. For a minimum of just $500, investors can put their money into real estate debt securities used to fund diversified and collateral-backed real estate projects. 

As an investor, you can invest for six, 12, or 24 months. Once the investment has reached its maturity date, you can either cash out the gains or reinvest your profits. With no overhead or account fees, you can begin earning monthly passive income from interest payments with liquidity and mitigated risk. 

The outlook for the real estate market in 2024 is looking up—isn’t it time for your pockets to do the same?

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.