After a tumultuous 2023, Realtor.com Chief Economist Danielle Hale joins Yahoo Finance Live to evaluate the housing market outlook for prospective buyers in 2024 amid lowering rates.

Per a Realtor.com survey, 61% of first-time home shoppers feel "very optimistic" about purchasing in 2024, with 95% confident they can own eventually despite affordability challenges. Hale notes mortgage rate volatility creates difficulty planning, but advises buyers to "rate-proof" budgets accounting for rate/price changes. While climbing rates stifled demand last year, she says the recent downtrend is "fueling optimism" around renewed accessibility.

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Editor's note: This article was written by Angel Smith

Video Transcript

- Meanwhile, the housing market taking a beating in 2023 with low sales volume, high prices, and tight inventories. But a new report out today highlights the best markets for first-time buyers in 2024. For more on that report, we're talking to one of its authors, realtor.com Chief Economist Danielle Hale.

Danielle, it is good to see you. So you actually-- you all surveyed the potential first-time homebuyers, Danielle. What do they have to tell you as we head into 2024? Are they feeling more optimistic?

DANIELLE HALE: Absolutely. So first-time homebuyers told us that they were, in fact, very optimistic. 61% said that now is a good time to buy a home for our recent realtor.com survey. And while affordability continues to be a challenge, even though we've seen some improvement as mortgage rates have come down, 95% of prospective first-time homebuyers feel like they'll be able to afford a home within their lifetime. 40% saying they're planning-- they're going to be able to afford it within the next year. So first-time homebuyers are bringing a lot of optimism to the market in 2024.

- Hey, Danielle. It's Julie here. How should people think about the sort of up and down that we have been seeing in mortgage rates, right? Like, yes, I know the longer trend is a little bit down. But there's some volatility there. So how are homebuyers approaching that?

DANIELLE HALE: Yeah, and the volatility can make it really difficult for homebuyers to plan to purchase because it's really hard to set a budget when mortgage rates are moving up and moving down. So my recommendation or advice to consumers is to really try to rate proof your budget and consider a couple of different scenarios. These can have pretty wide-ranging effects on your budget if you were to compare, say, October's high of 7.79% mortgage rates with the low that we saw at the end of December. You're looking at an $80 a month difference for every $100,000 that's borrowed.

So it's worth it for homebuyers to consider how much swings in mortgage rates will impact their bottom line and how aggressive they want to set their price target when they're searching for a home. Can they extend their budget a little bit if mortgage rates tick up more than they expected? Or do they need to cut back on their price target so they have some flexibility if mortgage rates do move higher?

- And Danielle, when you surveyed potential first-time homebuyers about that issue of affordability, what do they have to tell you?

DANIELLE HALE: Yeah, so buyers are optimistic about their ability to afford to purchase a home. And the drop in mortgage rates is no doubt fueling that optimism. So they do expect to be able to afford to buy a home within the next year.

And so that's one of the reasons why in our best markets for first-time homebuyers report, we looked at areas that offer housing affordability. We took a look at the price to income ratio, especially for younger households, which tend to be first-time homebuyers, as a good indicator of affordability in an area. But then we were also looking at things like the availability of homes on the market, the presence of restaurants and nightlife and culture activities that young people like to take advantage of. And of course, with return to work being a phenomenon, we took a look at commute times because nobody wants to spend forever trying to get to the office.

- The first city on your list, I don't even know how to pronounce it, Danielle. I know that it's somewhere near Rochester. But, you know, it's interesting. It's definitely a place-- a lot of places I've never heard of.

DANIELLE HALE: Yeah, Irondequoit, New York, is in the Rochester--

- Irondequoit.

DANIELLE HALE: --metro--

- OK.

DANIELLE HALE: --area. Yes, absolutely. And this report, we took a look at cities and towns within the metro area. So we could identify an entire metro area. But it's often more helpful to locate those pockets of affordability within a broader metro area because we know that young people are everywhere. First timers are everywhere.

And so we're trying to look for those little hidden gems of opportunity and surface those for first-time buyers. In addition to Irondequoit, we've got lots of other little towns and cities in the Northeast. But also, you'll see areas in the South and the Midwest on the list.