Home prices are rising, which is surprising because experts thought there might be a housing recession. This news might be upsetting for people who want to buy a home. To understand what might happen next, we need to look at the information, what experts are saying, and how the market is working.
The Continuous Rise in Home Prices:
The National Association of Realtors (NAR) and the S&P CoreLogic Case-Shiller home price index report that home prices increased by 4.4 percent and 4.8 percent in December and October. This is surprising because some experts thought the housing market might slow down in late 2022. But nope, the prices are holding strong, reaching near-record highs.
Mortgage Rates and Their Impact:
While rates have since dipped below 7 percent, the primary culprit behind the continuous rise in prices is identified as a lack of housing supply. With NAR reporting a meager 3.2-month supply of homes in December, the imbalance in supply and demand has become a critical factor influencing the market dynamics.
Supply and Demand Imbalance:
Experts, including Lawrence Yun, NAR's chief economist, and Skylar Olsen, chief economist at Zillow, emphasize the persistent supply-and-demand imbalance. Tight inventories have prevented any significant decline in house prices, with Rick Arvielo, head of mortgage firm New American Funding, asserting, "There's just not enough inventory." This scarcity has fueled bidding wars and kept prices elevated, making it challenging for first-time buyers to enter the market
Even though mortgage rates briefly dropped at the end of December, it's still getting more expensive for people to buy homes. In Realtor.com's report for December 2023, it says that high mortgage rates made the monthly cost of financing a regular home go up by 6.1 percent compared to the year before. This makes it tougher for buyers, especially those trying to buy a home for the first time, as housing costs keep going up.
Is a Market Correction Coming?
Housing economists and analysts agree that the housing market might need a little fixing, but they think it won't be a big problem. Unlike the huge drops we saw during the Great Recession, things right now don't look like they'll be as bad. “There’s just generally not enough supply,” says Mark Fleming, chief economist at title insurer First American Financial Corporation.
Pent-Up Demand and Boom-and-Bust Cycles:
Dave Liniger, the founder of RE/MAX, talks about pent-up demand. Many folks have been waiting for mortgage rates to drop before buying. When rates eventually go down, lots of people might rush in to buy, and that could make prices go even higher. It's like a boom-and-bust cycle – things go up, and then they might come down.
Lessons from the Past:
Thinking back to the housing market crash of 2005-2007, it's not the same this time. Homeowners now are in better shape with strong finances and good credit. Builders, having learned from the Great Recession, have exercised caution in their construction pace, this careful approach has led to not having enough homes for sale.
That's the lowdown on the housing market. Even though prices are climbing because there aren't enough homes, experts think any correction will be small. No one expects a big crash like before. As we go through these ups and downs in the housing world, everyone needs to stay informed and make wise decisions. Happy house hunting!