
It seems like what goes up in the housing market today doesn’t necessarily have to fall down.
After price surges that started during the epidemic, it appeared as though property prices were finally dropping off in the latter part of last year. In the second half of 2022, prices gradually decreased across the country as mortgage rates increased in response to rising interest rates. Additionally, prices significantly dropped in certain regions where many new homes had been constructed, including Charlotte, North Carolina, Austin, Texas, and Boise, Idaho.
Of course, for many others, that was a double-edged sword. However, this is because higher interest rates make it more expensive for buyers who borrow money to finance their purchases. Higher interest rates tend to lower housing values.
Even in regions of the U.S. where home selling prices already much exceed the national average, the rate increases were insufficient to reverse the significant price increases of the previous several years, but many residents welcomed the move nonetheless.
Then early this year, something even more unexpected occurred. Once more, prices started to rise. A few months ago, prospective homeowners may have sighed with relief, but now they face an unlikely double whammy: prices are at all-time highs despite mortgage rates being at 23-year highs.
According to government-backed lender Fannie Mae, the average 30-year mortgage rate in the United States was 7.49% as of October 5.
In reality, a review of Zillow data by NBC News revealed that expected mortgage payments had gone up in more than 500 places since the end of 2020, doubling in more than half of those cities.
Shoppers make numerous compromises before giving up
A medical device saleswoman from New York City named Tracy Jolson-Halperin said she and her husband have been looking for a home for the past 12 months. They initially made an effort to wait, believing that increasing mortgage interest rates would lower prices and lessen the ferocity of bidding wars. However, they haven’t found any evidence of that there.
The pair believed that time was on their side as they began with a well above-average budget of $1 million and wanted to find a three- or four-bedroom property close to a railway line.
“We had to increase the towns we looked at, taper our goals a lot, and increase our budget,” she stated to NBC News.
Jolson-Halperin has conceded that she & her family are more likely to find what they’re searching for in Connecticut than in Westchester, where they had originally wanted to purchase a home. She stated that she has thought about fixer-uppers and areas with less spectacular school systems but that she expects to drive to New York City for two hours on some days.
She claimed that on several houses, they submitted offers while removing mortgage conditions, which buyers use as an exit strategy should problems occur. On one property, they even overbid the asking price by as much as $100,000.
All of that fell short. She claimed they had made the decision to rent instead of speed up.
“We figure we’ll rent out of the city, get familiar with the towns,” she stated. “We feel like we missed out.”
“Prices in the areas which we really liked were simply going up and up,” Jolson-Halperin continued. Every transaction appeared to push the price of homes higher and higher, and we were beginning to feel priced out.
Declining accessibility
The house affordability index, which gauges a family’s ability to purchase a home in their market for the median price, has never been lower.
The S&P CoreLogic Case-Shiller U.S. National Home Price Index is at a record high as of the latest recent data in July, 1% higher than its previous record high. The price drop from late 2022 has been offset by the rise in recent months.
S&P stated in a news release that prices increased in all 20 of the main cities it monitors and that they are likely to continue to rise.
Increasing prices are once again reducing supplies
Although there has never been a better time for people to sell their homes, the new issue is that few people desire to do so. According to the National Association of Realtors, there were around 1.1 million existing properties that remained unsold in August, which is a decrease of nearly 15% from a year earlier.
According to NBC News, Greg McBride, chief financial analyst for Bankrate, customers who purchased their houses years ago and locked in mortgages at 3% or 4% interest rates are becoming less and less inclined to move as rates rise.
This indicates that supplies are low, which has caused prices to rise once more.
“The reversal that we have seen in the housing market has occurred despite rising mortgage rates since the dominant dynamic is the very limited supply of homes that are for sale,” McBride stated. “That has led to higher costs in several markets. In other cases, it has controlled price reductions or set a floor beneath prices.
Even real estate agents are raising the alarm because they are dissatisfied with the lack of available homes for sale. Lawrence Yun, the chief economist for the National Association of Realtors, stated in a news release on September 28 that the supply of homes needed to quadruple solely to offset the recent price increases.
According to McBride, prices will ultimately cease rising, but even then, they are more likely to stabilize rather than significantly decline, at least nationally. Higher rates may cause prices to decrease, but it will take considerably longer.
“There will be a tipping point when higher rates siphon off sufficient demand that even having limited supply, there is no longer fuel to push prices higher,” he stated.
“When does this situation with the extremely low supply become better? With mortgage rates hovering around 8%, it’s probably not going to happen.