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Buying a house is a major milestone, but many Americans have been struggling to find affordable options — or any options — over the last two years. However, the supply of active home listings across the U.S. grew at a record rate in July. Now, the big question is whether this will help lower home prices and by how much.
The Impact of Low Housing Inventory
At the onset of the COVID pandemic, one of the largest contributors to low housing inventory was record low mortgage rates.
To help support the economy and financial markets, the Federal Reserve eased monetary policy and kept the funds rate near zero. That, in turn, helped push down mortgage rates to under 3% for a 30-year fixed-rate mortgage. However, now current rates are headed past 5% and almost at 6% (which is nearly double the low rates available in past years.
Historically low mortgage rates pushed more buyers into the housing market. Because there was already a shortage of new homes being built, the supply of existing homes significantly dropped. With so few homes on the market and surging demand, prices skyrocketed.
Thanks to rising mortgage rates and record home prices, it was more expensive to buy a home in June 2022 than it has been in any month in more than three decades. That made it especially difficult for first-time buyers to enter the market, leading many to pull back and wait it out.
U.S. Housing Inventory in Recovery as Buyers Pull Back
Due to the slowdown in demand, more properties are now being left on the market. According to a recent report by Realtor.com®, the number of active listings nationwide grew by nearly 31% in July compared to a year ago, which is a record increase for the third consecutive month.
Homeowners are still in a good position in many markets across the country to list their homes for sale. However, while the report noted a shift towards an active market (people are still looking to buy), the latest concern that could stall home buying could be higher 30-year-fixed mortgage rates which are tipping towards 6% – almost double the low rates we saw a few years ago.
Will Home Prices Fall?
Data from Realtor.com shows that the median national home price for active listings declined to $449,000 in July, down from a high of $450,000 in June. Prices are beginning to drop, and inventory is increasing, but new listings were down 2.8% from a year earlier, suggesting a shift in seller sentiment. Buyer competition is still hot, but this may be an early sign of market cooling.
According to Moody’s Analytics’ latest proprietary housing analysis, as reported by Fortune, prices are likely to shift in 414 regional housing markets between the fourth quarter of 2022 and the fourth quarter of 2024, but these price changes vary. The forecast model predicts that 210 markets could see declines in housing prices while 204 markets could see price increases.
Wait for Affordability
A slowdown in the housing market and lower prices in your target market could take some time. If you’re looking to purchase a home, affordability still remains a top concern, but there should be a growing number of homes on the market as more buyers choose to wait on the sidelines. But with higher mortgage rates to get a loan for a new home purchase, it’s even more important to hold out for the right price to keep your monthly mortgage payment within your budget.
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