Over the past couple of years the Federal Reserve has been raising interest rates to slow inflation. One side effect is that mortgage rates are now over 7%, which makes borrowing a lot more expensive. That has pushed many buyers out of the market and slowed things down.
What’s interesting is that home prices haven’t dropped as much as you’d expect. Builders still face high costs for labor and materials, and zoning rules limit new supply. So even though fewer people are buying, there aren’t enough homes to really bring prices down.
This leaves a lot of people stuck. First-time buyers can’t afford to enter the market, while homeowners with older low-rate mortgages don’t want to sell. It makes me wonder how long high rates can last before either construction slows way down or prices finally adjust.
Sources:
https://www.freddiemac.com/pmms
https://www.nahb.org/news-and-economics/housing-economics
A personal goal of mine is to buy a house relatively quickly once I graduate. The closer that gets, the less likely I'll be able to do so. I will probably take advantage of living in apartments and easily being able to move around if I find jobs in different locations. Hopefully the housing market will be reasonable in the next couple of years, since we are going to be the first time buyers!
ReplyDeleteDo you think the housing market will eventually see prices fall if high rates persist, or will supply constraints keep values elevated despite weaker demand?
ReplyDeleteThe lock-in effect you mentioned seems like one of the biggest hurdles right now, since so many homeowners are sitting on low mortgage rates and won't list their houses. That really limits turnover in the market and keeps prices from dropping the way basic supply and demand might suggest. It will be interesting to see if policy changes around zoning or incentives for new construction become part of the solution.
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