Key Points:
- Despite high mortgage rates, home prices keep rising due to limited housing supply.
- Economists foresee a modest market correction, not a crash like the Great Recession.
- Factors like low inventory and strict lending standards suggest a housing crash is unlikely.
It’s frustrating for potential homebuyers to watch property prices continually climb. Even with some of the highest mortgage rates in over two decades, home prices remain on an upward trajectory.
According to the National Association of Realtors (NAR), home prices rose again in January, marking the seventh consecutive month of year-over-year increases. Despite some minor fluctuations, the trend is clear: home values are still climbing.
The slowdown that was anticipated in late 2022 never fully materialized. Instead, home prices rebounded, reaching near-record highs. This surge is primarily attributed to the persistent shortage of available homes on the market.
Even as mortgage rates soared to their highest levels in more than 23 years, home values held steady. The lack of housing supply continues to be the main driving force behind the housing market’s resilience.
Experts like Rick Arvielo from New American Funding emphasize the impact of low inventory on housing prices. With demand outweighing supply, home prices are unlikely to decline.
Skylar Olsen, Zillow’s chief economist, predicts that home prices will continue to rise into 2024, posing challenges for first-time buyers. Despite hopes for more affordable housing, the trend points in the opposite direction.
Realtor.com’s Housing Market Trends Report for February 2024 highlights the increased monthly costs for financing a typical home due to high mortgage rates. This added financial burden complicates the affordability issue further.
However, experts reassure that any market correction will likely be modest. Unlike the drastic declines seen during the Great Recession, a similar crash is not anticipated.
Will the Housing Market Crash? No, say industry experts. The imbalance between supply and demand, coupled with stringent lending standards, makes a significant price decline improbable. Mark Fleming, chief economist at First American Financial Corporation, emphasizes the basic economic principle of supply and demand.
Dave Liniger, founder of RE/MAX, notes the pent-up demand from buyers waiting for lower mortgage rates. When rates eventually drop, it could trigger another surge in demand, driving prices up further.
While some local markets may experience slight price declines, a national-scale downturn is unlikely. As Lawrence Yun from NAR suggests, prices will likely remain firm.
Key Housing Market Statistics:
- The average mortgage interest rate on a 30-year loan was 7.09% as of March 6.
- Existing-home sales rose by 3.1% from December 2023 to January 2024.
- The median sale price of a home in January was $379,100.
- Housing inventory remains low, with a 3-month supply in January.
- Foreclosure activity is modest compared to previous years.
In summary, while concerns about housing affordability persist, experts are confident that the current housing boom will not end in a crash. Factors like low inventory, strong lending standards, and demographic trends support this outlook.
