Nine Straight Months
In January of this year, the number of single-family homes sold rose month-over-month, according to the National Association of Realtors®. Since then, the metric has fallen each month, coinciding with a rise in mortgage rates. As the average rate on a 30-year fixed mortgage hovers near 7%, many market observers contend prices are poised to fall significantly.
The median price of a home hit its peak in June at just under $414,000. Some economists estimate they will ultimately fall 20% from that number. Analysts with Goldman Sachs (GS) recently cut their forecast for home prices in 2023, from a flat prediction to a 4% fall.
As with anything subject to pricing, home sales come down to supply and demand. In the case of housing in the US, supply is fairly limited, with only a select number of homes on the market at any given time. Up until recently, many economists argued that low inventory would keep home prices elevated. In other words, a large pool of buyers isn’t needed to buoy higher prices, when supply is low.
But now that sales have continued to drop for such an extended period, inventory is building up. Because homes aren’t selling as fast, they remain on the market, boosting supply overall. This can help prices fall over time.
Low Rates, and Jobs
Would-be buyers hoping for prices to go bust should temper their expectations. One reason is that mortgage rates were extremely low over the past few years, meaning current homeowners are locked in with affordable monthly payments. This makes people less motivated to sell, which restricts inventory in the long term.
Also, the job market is strong at present. That means people are more likely to remain current on their mortgage and avoid default, further restricting supply. So, you could call current conditions somewhat of a market correction. Homeowners aren’t facing a major crash, and hopeful buyers can eye improved conditions in the coming months.