Inside Scoop: What's Really Going On With Rates and Home Prices?
Confused about what's happening in real estate and whether it's a good time to buy a home? You're not alone. Here's what every prospective homebuyer should know about the current market.
As you may have noticed, even though mortgage rates are still on the higher end, housing prices have remained stubbornly high. This goes against what conventional wisdom suggests—that as rates go up, prices should go down. But that hasn't been the case. Despite the Federal Reserve raising rates ten times, home prices have stayed up.
So, what's causing this strange situation?
Well, it all boils down to a unique set of circumstances that have unfolded after 2020. Many people took advantage of ultra-low mortgage rates and bought homes, which created a shortage of available houses. This shortage has prevented prices from falling, even though demand has slowed a bit due to higher mortgage rates.
When it comes down to it, current homeowners are a large part of the issue. The higher rates are not only discouraging new buyers, but they are also unnerving existing homeowners from putting their homes on the market.
So even if they could sell their homes at a high price, they are hesitant to enter the tight market and face the prospect of getting a new mortgage with rates above 6%. It's a big difference from their current sub-3% rates, which many people don't want to give up, even with the potential windfall from a sale.
So this leads to a complex market where demand is somewhat down, people aren't actively looking to sell, yet prices are still high.
Normally, when demand drops, supply goes up, and housing becomes more affordable. But that's not what's happening now. According to data from the National Association of Realtors, the average seller still receives about three offers for a listed home. This means there are still more buyers than available homes.
Now, here's the surprising part: new-home sales have recently increased!
Although sales of existing homes have gone down, sales of newly constructed homes have jumped by 20% compared to last year. Homebuilders can offer incentives to buyers, which makes new construction more attractive.
The fact that housing starts are also increasing is a positive sign because it means construction is picking up speed after facing difficulties with supply-chain issues.
This is crucial because it could help alleviate the shortage of homes on the market and make housing more affordable for buyers.
So, what's next? Should you wait?
That's a very risky move. You see, if there's a significant drop in mortgage rates, demand will increase --and as you might have guessed, competition and prices will surge once more.
Is there an alternative?
Yes! You have many, and they all begin by getting in touch with us. We'll work with you to come up with a home-buying plan so you make the smartest and most affordable financial decisions without waiting to see what the market might (or might not) do.