Housing Market to Take Turn for Buyers

Home prices in the U.S. are set to stay flat over the coming months amid elevated mortgage rates, a real estate expert said, a development that could make it better for buyers looking to acquire homes in a market that has struggled with expensive homes for years.

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During the pandemic, lower mortgage rates sparked a rush in homebuying that escalated demand for properties that in turn contributed to a jump in prices. But soaring inflation forced the Federal Reserve to hike interest rates which pushed up borrowing costs for home loans. A jump in mortgage rates ensued which, along with high prices, has made buying a home unaffordable for many Americans.

This dynamic has hurt demand for homes even as listings have increased. If mortgage rates continue to stay high, it could lead to prices decelerating which may help give some relief to prospective buyers.

“It probably means that we’re going to see [home] prices flat now,” Ken H. Johnson, a real estate economist at Florida Atlantic University’s College of Business, told Newsweek.

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Johnson suggested any price slowdown was unlikely to be similar to the declines seen during the 2008 financial crisis. An oversupply of homes along with a foreclosure crisis sparked a collapse in home prices as there was little demand in the economy to help prop up the market.

“This time around, we have a huge housing shortage,” Johnson said. “So, rather than a housing crash this time around, I think we’re going to have this prolonged period of unaffordable housing and that’s on both the rental side and the homeownership side.”

This will likely make the market slightly more favorable for buyers.

“That would be better than it has been,” he said.

While the overall sector is witnessing a jump in inventory and a drop in prices which is helping to make homes relatively cheaper, there is a bifurcated nature to the housing market in the U.S. at the moment, some real estate experts say.

“If you’re in the South and parts of the West and Mountain West, it’s going to get a lot more favorable for buyers. I think prices in these areas are going to go down and potentially down substantially,” Nick Gerli, CEO of Reventure Consulting, told Newsweek. “In the Northeast and Midwest, we’re not seeing nearly the same rise in inventory. We’re not seeing nearly the same level of price cuts.”

Gerli suggested, though, that even if the Federal Reserve cuts rates this year, the cost of a home loan is likely to go down from the current 7 percent to about 6.5 percent, which could still make it tougher for first-time homebuyers.

Read more: First-Time Homebuyer Grants: How to Get Help Paying for Your First Home

“I think it’s more a story of both prices and rates have to go down,” he said.

Daryl Fairweather, the chief economist at Redfin, suggested that even as inventory has increased, it is still not enough, keeping prices elevated, clocking in at 4 percent higher right now compared to a year ago. That, coupled with mortgage rates remaining high, has made purchasing a home still difficult.

“It’s just a tough time for buyers because of how high mortgage rates are and the lack of selection when it comes to homes for sale,” she told Newsweek.

While an economic slowdown has given some analysts hope that policymakers are set to lower borrowing costs, inflation persistently staying above the central bank’s 2 percent target makes the prospects of a Fed’s rate cut unlikely to move the needle all that substantially.

“I think anytime rates move down even by a slight amount there are buyers that get off the sidelines, decide to make an offer, decide to lock in their rate,” Fairweather said. “But I’m not anticipating a significant shift down in rates. I think it’s going to be a small shift just because inflation is still a lingering problem.”

A For Sale sign displayed in front of a home on February 22, 2023, in Miami, Florida. Home prices could flatten over the coming months.

Joe Raedle/Getty Images

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Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.