Throughout the sustained run-up in home prices, there’s been sporadic speculation that a reversal must be imminent—possibly driven by a natural urge to assume that too much good news is bound to invite a corresponding nosedive.
Throughout the run-up, the commonly accepted reason for U.S. home price increases has been the sustained supply and demand imbalance. For a number of well-documented reasons, the supply of homes for sale dropped below record levels at the same time that demand continued to mount. As competition for the available housing increased, so did the willingness of buyers to pay top dollar. Super-low mortgage rates helped make many high-priced Southeast Michigan real estate buying decisions entirely reasonable.
Now, as the summer wears on, many parts of the nation are registering conditions that you might expect to cause a sharp decline in real estate prices. Nationally, demand has slackened somewhat (no surprise, given the rise in the cost of home loans). And supply has increased. Yet prices aren’t buckling. As realtor.com wondered last week, “Deals are falling through. Bidding wars are dwindling…so how is it possible that median list prices are 16% higher than a year ago?” Some possible reasons—
- Per Bankrate’s chief analyst Greg McBride, “while the market is cooling, prices are not necessarily dropping.” One factor is a renewed falloff in new home construction which will further constrain inventories.
- Per New York City Realtor Ralph DiBugnara, “The summer market will stay mostly high because of an increased urgency to buy.” He cites buyer fears of accelerating mortgage rates.
- Per NAR senior economist Nadia Evangelou, “I believe the housing market will continue to outperform compared to pre-pandemic.” But price growth will slacken due to affordability concerns.
- Per CoreLogic’s economist Selma Hepp, conditions “will lead to slower home price growth but unlikely declines in home prices.”
As all acknowledge, no one (experts included) can claim certainty about the future—and the current mix of volatile conditions can cut both ways. If a falloff in the market tempts some sellers to drop asking prices, others, per Hepp, “won’t be under a lot of pressure to budge”—particularly sellers who will need monetary inducements to kiss their historically low mortgage rates goodbye.
