For the first time in 11 years, the median price of a home has dropped, according to the National Association of Realtors. On top of that the sale of existing homes has increased by 14.5% in the month of February, which is the largest monthly increase since July 2020. However, sales are still off by roughly 23% from 365 days ago.
In 2021, the median price of a home fell roughly 0.2%, which levels out to $363,000. Lawrence Yun, NAR Chief Economist states, "Conscious of changing mortgage rates, home buyers are taking advantage of any rate declines. Lawrence also believes that the housing market is seeing the strongest sale gains in areas where home prices are decreasing and the local economy is adding jobs.
It is important to note that the inventory of homes on the market for sale remains low, with less than a 3 month supply. Homeowners continue to sit on the low rate mortgages which is why they are not encouraged to sell their homes. This is because if they sell their home with an existing low-interest rate then the next home they purchase will be in line with current interest rates which are higher than they were 1-2 years ago. Any further drop in Interest rates will likely bring more buyers into the housing market.
Analyst Hannah Jones believes that there are two unknowns when coming into this spring housing market. One is the debate on what the Federal Reserve will do with IR (either increase or decrease). With an increase in the IR, homeowners are likely to keep their existing houses and people looking to enter the housing market will be hesitant. The second unknown is whether or not the job market will enter a period of slowdown. In this case, a decrease in the job market would also decrease the purchase of big-ticket items, including houses, cars, and college education.
At this point in time, there are many things riding on the success of the economy, one of them being interest rates. The Federal Reserve must find a happy medium that continues its journey to 2% inflation but also take into consideration the many other factors that high-interest rates have on the economy.
https://www.usnews.com/news/economy/articles/2023-03-21/home-sales-spike-in-february-on-a-dip-in-mortgage-rates-though-prices-fall-for-first-time-in-11-years
3 comments:
Great post! It will be interesting to see how the actors in real estate market react to a likely increase in layoffs and interest rates. A recession would make activity in real estate slow down even more as investors will be hesitant to make an acquisition while sellers will struggle to find a buyer. The price of homes has hardly dropped, so hopefully this time when the FED rises rates, we see a drop in home prices because right now prices are ridiculously high.
I also wrote my most recent blog on mortgage rates and the housing market. The effect interest rates have on the mortgage rates is very interesting, and while mortgage rates dropped last week along with the median price of a home, many believe this will not increase potential homebuyers' demand for new homes. Too much economic uncertainty has left many afraid to move forward in the home buying process.
The recent drop in median home prices and increase in home sales indicate a shifting trend in the US housing market. The low inventory of homes for sale and the fact that homeowners are holding onto their low-interest mortgages suggest that the market is still competitive for buyers. The uncertain impact of potential interest rate changes and job market fluctuations further complicate the situation. It is important for policymakers and economists to consider all of these factors when making decisions about the housing market and the broader economy.
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