Your Guide to the Housing & Mortgage Markets

FOUR REASONS WHY HOUSE PRICES AREN’T LIKELY TO COME DOWN SIGNIFICANTLY1

ALTHOUGH HOUSE PRICES HAVE COME DOWN IN SOME MARKETS, THERE IS LIMITED HOUSING SUPPLY… AND THIS WON’T CHANGE ANYTIME SOON.

We currently have a shortage of between 3 million and 5 million homes in the US, according to research conducted by Freddie Mac, the National Association of Realtors, and others. That’s because we’ve been under-building homes for the past decade. Even if builders start building lots of homes, the housing shortage won’t disappear overnight. It may take years for supply to catch up with demand. This means that the housing supply may be limited for another few years. During that time, house prices are likely to continue inching higher in most markets. That’s because prices go up when supply is less than demand in any market.

LOWER INFLATION DOESN’T EQUAL LOWER PRICES.

Even if inflation drops from current levels, it doesn’t mean that prices will drop. It simply means that prices will go up more slowly than they have in recent years. For example, the food you buy at the grocery store isn’t likely to come down in price if inflation slows down. As we’ve all seen, the price of the food we buy has continued to increase. The same is true with house prices. The prices of houses and rent will likely go up more slowly if inflation slows down. That’s what we’ve seen so far this year, and it’s likely what we’ll see next year as well… unless, of course, interest rates drop. If that happens, house prices are likely to go up quite significantly as outlined in point #3.

ELEVATED MORTGAGE RATES HAVE PUT A DAMPER ON HOUSE PRICES… FOR NOW.

Record-low mortgage rates in 2020 and 2021 were a main contributing factor to the record growth in house prices. Since then, mortgage rates have increased significantly. This caused many potential homebuyers to pause their home-buying decision. Rates have started to come down, and many buyers who were waiting on the sidelines will likely jump back into the market if rates come down further. If that happens, housing demand and house prices will likely skyrocket. This may negate whatever savings you had hoped to gain by waiting for interest rates to drop.

INFLATION MAY ACTUALLY GO UP NEXT YEAR… CAUSING HOUSE PRICES TO REMAIN ELEVATED OR INCREASE FURTHER.

Tariffs, massive government spending deficits, and other contributing factors may cause inflation to increase in the months ahead. The last several inflation readings have been elevated, and this may remain so in the foreseeable future. Real estate values tend to increase during periods of elevated inflation. For example, during the last protracted period of elevated inflation in the 1970s and 80s, real estate values increased consistently throughout those decades.

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