The Housing Market Is in Gridlock
The housing market is neither getting better or worse; it is currently bottomed out.
According to Realtor, sales have plummeted due to that lack of inventory. In 2021, when mortgage rates fell to record lows in the mid-2% range and COVID-19 pandemic buyers flooded the market, sales of existing homes surged to 6.12 million, according to the National Association of Realtors®. The following year, mortgage rates spiked, briefly topping 7%, and sales dropped down to 5.03 million. This year is on pace for 4.16 million sales, a 17.3% decrease from 2022.
The housing market won’t be able to rebound until more homes hit the market. This isn’t expected to happen until mortgage rates fall to the “magic” mid-5% range, says Bachman.
Rates are expected to remain elevated until the U.S. Federal Reserve decides to stop hiking rates to combat inflation and eventually brings them back down again.
Right now, many homeowners don’t want to sell and give up the ultralow mortgage rates in the 2% and 3% range, which they secured during the pandemic. Once mortgage rates drop, they are likely to be more comfortable selling their homes and buying new ones. That’s expected to get the housing market moving again and increase sales.
“You can’t buy what’s not for sale,” says Odeta Kushi, deputy chief economist at First American Financial Corp., a property title and settlement company that provides data and analytics. “If rates come down, that changes the equation for a lot of people.”
Typically, a near tripling of mortgage rates over such a short period would result in lower home prices. Buyers can afford to spend only so much on their monthly mortgage payments—which in July were just over double what they were three years earlier for the same property.* While higher home prices certainly contributed to those heftier bills, more than half of that increase was due to higher mortgage rates.
Many buyers have been forced to move farther out, purchase smaller homes, or buy fixer-uppers as they can no longer afford the homes that were solidly within their price ranges just a few years earlier. Other would-be buyers have been priced out.
That diminishing demand and higher rates should have pushed home prices down. But prices came down only 0.9% in July from the previous year, according to the most recent Realtor.com data.
“This market is anything but normal,” says Kushi.
