After two long years of fierce competition, sky-high costs, and intense bidding wars, the housing craze screeched to a sudden halt in the spring of 2022.
With inflation on the rise and the Federal Reserve hiking its baseline interest rates, mortgage rates doubled in a matter of months.
Though there is no shortage of prospective buyers, many balk at the high prices that come with a dwindling supply. On top of the skyrocketing rates, homes priced at the median of $424,000, even with a 20% down payment, now cost over $1,800 a month in principal and interest. That’s a staggering 23% increase compared to the same price point last year.
It also leaves current homeowners - most of whom secured mortgages at record-low rates – with little to no motivation to put their properties up for sale. Consequently, the pool of viable for-sale options remains astonishingly slim.
Economic uncertainty – including inflation, the threat of financial instability, and the war in Ukraine – adds to the unnerving prospect of buying or selling property. The result? A tense housing market stalemate.
Renting is an option, but not a very appealing one. The median rent nationwide is $1,350, much higher in metropolitan markets. And renters are not building any equity.
But a home purchase isn’t just a financial decision. It’s an emotional one. Throughout history, singles become couples, who then form families and eventually establish households. They can only put off these decisions for so long. Eventually, they grow accustomed to the idea of spending more on a home.
In some places, this process may have already begun. Although sale prices fell 5.6% in the West in February compared to the previous year, they rose by 5% in the Midwest and 2.7% in the South.
Home showings are up 20% since the start of the year, as are Google searches for “houses/homes for sale.” Mortgage applications were up 19% during the last week of March.
The most recent report on pending home sales in the United States indicates that the index climbed by 3.1% in January of 2023, exceeding analysts' expectations. This upturn corresponded to dips in mortgage rates, which may have energized buyers.
The National Association of Realtors (NAR) anticipates that existing-home sales will decrease by 11.1% in 2023, and existing-home prices will drop nationally by 1.6%.
The industry group expects home sales to pick up only in 2024, when they anticipate that the number will surge by 17.7% to 5.26 million units sold.