U.S. home prices will remain stable over the next few months due to rising mortgage rates, real estate experts said, a development that could be favorable for buyers looking to buy a home in a market that has long struggled with high housing prices.
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During the pandemic, lower mortgage rates sparked a surge in home buying, boosting demand for real estate and driving up prices. But soaring inflation forced the Federal Reserve to raise interest rates, raising the cost of mortgage borrowing. The result was a surge in mortgage rates, which, combined with rising prices, put home buying out of reach for many Americans.
This trend is dampening demand for housing even as the number of homes on the market increases. If mortgage rates remain high, this could lead to lower home prices, providing some relief to would-be buyers.
“That's probably what we'll see. [home] “Real estate prices are flat right now,” Ken H. Johnson, a real estate economist at Florida Atlantic University's College of Business, told Newsweek.
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Johnson suggested the price drop won't be on the same level as the 2008 financial crisis, when a housing oversupply and foreclosure crisis caused home prices to crash, but there was little demand in the economy to support the market.
“This time, we have a real housing shortage,” Johnson said. “So rather than a housing price crash this time, I think we're going to see a prolonged period of housing unaffordability, both for renters and for homeownership.”
This could make the market slightly more favorable for buyers.
“It will be better than ever,” he said.
While the real estate industry as a whole is seeing rising inventory and falling prices, making homes relatively affordable, some real estate experts say the U.S. housing market is currently polarized.
“The South, the West and parts of the Mountain West are going to be in a much better position for buyers, as prices in those areas are going to come down, potentially significantly,” Nick Gerli, CEO of Reventure Consulting, told Newsweek. “In the Northeast and Midwest, you're not going to see as much inventory growth and you're not going to see as many price cuts.”
But Gerli suggested that even if the Federal Reserve cuts interest rates this year, mortgage costs will likely fall to about 6.5% from the current 7%, which could still make things tough for first-time homebuyers.
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“I think the story is that both prices and interest rates have to come down,” he said.
Daryl Fairweather, chief economist at Redfin, said inventory is growing but not enough, and prices remain high — currently 4% higher than a year ago. That, combined with persistently high mortgage rates, means buying a home remains difficult.
“With high mortgage rates and a limited selection of homes for sale, it's a tough time for buyers,” she told Newsweek.
The economic slowdown has some analysts expecting policymakers to lower borrowing costs, but with inflation persistently above the central bank's 2% target, the prospect of a Fed rate cut is unlikely to make much of a difference.
“I think if interest rates go down even a little bit, we'll see some buyers come off the sidelines and decide to buy and lock in their rates,” Fairweather said, “but I don't expect rates to go down a lot. They'll probably go down a little bit because inflation is still an issue.”
A “For Sale” sign in front of a home in Miami, Florida, on February 22, 2023. Home prices may plateau in the coming months. A “For Sale” sign in front of a home in Miami, Florida, on February 22, 2023. Home prices may plateau in the coming months. Joe Raedle/Getty Images
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Newsweek is committed to challenging conventional wisdom, seeking common ground and finding connections.