Are Home Prices Going Down?
What will happen to home prices? Are Home Prices Going Down? is the burning question on everyone’s mind. This is because we are now in a “technical” recession, and mortgage rates have risen significantly since last year. If you’re looking to buy a house right now, these are probably not the best words to hear. Let’s get a solution for Are Home Prices Going Down? And know the current situation and the main drivers of home prices to help you digest this information. Based on that, I’ll share some thoughts on what that means for your home-buying decision.
Supply and demand are the most important price drivers. When supply or demand changes, so does the price. For example, if supply increases, prices fall; on the other hand, if demand increases, prices rise. So, what is going on with supply and demand? Let’s look at the question Are Home Prices Going Down? And the Factors that are causing this problem.
Months of Inventory is the most common measure of housing supply. If a neighborhood has 10 homes for sale and 5 homes sell each month, there is 2 months of inventory. We should have the question in our mind: Are Home Prices Going Down? In a typical market, there should be about 4-6 months of inventory available. Some markets have recently been reduced to a single month.
To put it another way, the number of active homes listed for sale has been 300k-600k nationally this year, down from 1.2 million in 2017-2019 prior to COVID. Supply has been limited, but it is unclear whether this will change. In order for prices to fall, supply must increase.
Construction of New Homes
Since the financial crisis, far too few homes have been built in comparison to the number of new households. Why not construct more? First, there is a severe labor shortage, as well as an increase in supply costs (like lumber). There isn’t much you can do to make an immediate difference. Some are advocating for changes to import regulations for items such as lumber. Others are actively recruiting new construction workers. Change is unlikely to occur quickly.
Second, and perhaps more importantly, there is a major issue with where we build homes: every location has zoning codes that govern what you can and cannot build. If you want to build a house but don’t have enough space for parking, you’re in trouble. There will be no soup for you! This, in my opinion, will not change.
The news that builders are slowing down Are Home Prices Going Down? in the current environment is the final indicator of whether or not we’ll see new home construction on the rise. All of this is to say that the likelihood of an influx of new homes being built is low.
Existing Home Sales
If no new homes are built, we must rely on more existing homes being listed for sale. People must think about Are Home Prices Going Down? and decide to leave for this to happen. However, people are staying in their homes for much longer. Even longer now that interest rates have risen: why would you relocate if you have a 2.75% mortgage on your current home?
The elderly are also choosing to stay in their homes longer because nursing home life is far less appealing after COVID and extremely expensive. All of this would be made easier if there were other areas with housing or rental supply. Unfortunately, even Tier 2 and 3 cities are experiencing supply shortages. Homes are being listed in decreasing numbers. The supply of existing homes for sale is unlikely to change as a result of this.
What factors could influence the market?
Are Home Prices Going Down? According to the data presented above, it does not appear that housing supply will increase. However, there are a few other factors that could tip the scales in your favor.
The Baby Boomers
There could be a sudden shift in the status of older Americans as homeowners. Is there a sudden increase in supply if the second largest generation (baby boomers) dies while the largest generation (millennials) has already settled?
Because of the impact of remote working, many people are willing to live in less urban areas. In my opinion, the acceptance of remote working is analogous to the invention of the automobile. Just because you have a car and can drive to the suburbs doesn’t mean you want to. People who live in extremely limited supply areas, on the other hand, have had to choose between small homes with short commutes and large homes with long commutes. I believe they will eventually choose the new third option of larger cities with no commute.
This change will free up some supply in oversaturated areas while increasing supply elsewhere (places where zoning and other restrictions are not as constraining on new developments). But, like the automobile, this is a long-term shift in geographic preferences rather than an abrupt change.
Selling Due to Fear
The impact of fear is a strong possibility or change. People may panic about Are Home Prices Going Down? and try to sell their homes at the peak of the market when they could have waited a year. In the short term, this would artificially flood the market with supply.
Anyone considering purchasing a home will want to know where home prices are headed. afterwards, we discussed the factors influencing housing supply and concluded that an increase in supply is unlikely. Will the amount of demand, on the other hand, change?
Americans still want to be homeowners. Almost all renters hope to become homeowners someday. This aspect of demand has not changed. However, how many people are ready to buy, what type of home they want, and, finally, where they want to live may change over time. Let’s take a look at what’s driving demand and how it affects the market.
Drivers of Demand
The millennial generation, the largest in history, is now of the age when starting a family and having children is the thing to do. Much has been made of millennials’ lower marriage rates, but I believe this is overstated. Marriage rates conceal the number of couples who live together before getting married. Millennials, whether married or not, are more interested in buying a home than ever before, and demand has been increasing in recent years.
Size and location of a house
Despite the fact that families are smaller today, This question might have an end: Are Home Prices Going Down? really. The styles of homes that are being developed show a definite preference for more room. If all else is equal, more space is preferred over less space. Outside of the small percentage of people who wish to live in tiny homes, the type of housing that is in demand probably hasn’t altered all that much.
Where individuals wish to reside is expected to undergo the biggest shift. The influence of remote working is probably going to have an effect on preferences, as I noted in the analysis of home supply. In bigger metro areas, it might cause demand to move away from more expensive, smaller homes that are closer to the office and toward larger, farther-away residences. It might alter demand.
The Income and Cost of What People Can Afford
What people can truly afford is the last element of the puzzle. People can buy more and look at more expensive homes if their salaries increase (or push up demand for certain homes). While wages are rising slightly, costs are also rising (gasoline). Demand is unlikely to be impacted by income.
However, affordability is not only a result of money. Since the majority of individuals need a mortgage to purchase their home, it is heavily influenced by the cost of financing. In my opinion, most purchasers pay more attention to their monthly payments than the price of the home they can afford. They should have thought: Are Home Prices Going Down?
My main issue is right here. Interest rates recently peaked at 5.3%, up from 2.7% a year earlier. That level of rates obliterates the cost of homes people may purchase if income remains unchanged. As an illustration, a family earning $150,000 per year would be able to afford a monthly payment of $3,125 and consider residences priced at about $770,000. The goal would have to be reduced to $560,000 at a mortgage rate of 5.3% to maintain the same monthly payment, giving them over $200,000 less purchasing power!
Demand in general
The impact of interest rates above 5% on financing costs will restrict purchasing power and reduce demand for mid- to high-priced homes unless there is a large increase in salaries. Existing homeowners won’t take action since their current mortgage rate is too favorable, even if they would ordinarily prefer to “upgrade” to a bigger property.
Mid- to high-priced homes will become unaffordable for many consumers at rising rates, necessitating price reductions. Home prices can reverse course with just one lower-priced sale, which could further reduce demand as people become less interested in buying homes as investments.
We have talked in the article about Are Home Prices Going Down? The average price of homes will fluctuate depending on the availability of homes for sale. A spike in the number of properties for sale in a specific location would probably lead to a drop in pricing. However, current patterns suggest that it is unlikely to occur very soon. Even if you concur with me that remote work will have an influence on housing, this is not going to happen quickly. In the absence of a panic, supply is unlikely to have a significant impact on property prices.
Every expert, including me, has an opinion on what might occur. Additionally, practically nobody will get it absolutely right. You may get a sense from my examination of the factors that influence supply and demand, which in turn affects property prices. But the final line for prospective buyers is this:
First and foremost, everything will balance out in the long term. Over a ten-year period, price fluctuations in homes often level off because they move in lockstep with inflation. If you intend to stay for some time, it is still a very wise investment. You should take into account all of the non-financial advantages of ownership as well.
There is always a higher danger that you won’t be able to accumulate a significant amount of equity through home price appreciation if you only intend to own for a short period of time ( 3 years). In certain places, the risk is really higher right now. Consider carefully how long you intend to stay. Additionally, investigate the location you are purchasing in.