As a real estate professional, one of the most common questions I get is, “When will home prices fall?”
Makes sense; Buying a home is a big financial decision. With titles that predict clashes, recessions and market decline, it is natural to want to expect the housing market to become more affordable.
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However, real estate do not behave as many people think. Of course, home values can fluctuate, but prices are stuck to the highest levels of all time. We can partially blame the inflation, which is making everything more expensive. We can also blame a massive lack of housing for competition. In most of the US, we still do not have enough home available for those who want to buy them.
It is not my job as a realtor to tell my customers to never rush and buy the first home they see. But if you are still sitting on the borders waiting for a huge drop in house prices, you can wait forever.
Homes’ prices are not falling soon
Many people think that real estate is like shares – prices rise, prices fall. If you have market time, you can enter the lowest possible price. Apart from the houses they are not like the shares at all.
Home prices do not fall suddenly. A combination of factors prevents them from falling sharply, from supply and demand to inflation, from mortgage rates to emotional bonding of homeowners in their properties.
I have been in the real estate industry enough time to know that dwellings do not occur in a vacuum. Let them dive into the main reasons why a large drop in prices in today’s market is unlikely.
1. The supply is low, the demand is high
At its core, the housing market is driven by supply and demand. When there are more buyers than available homes, prices rise. Depending on what the report you read, the US is short between four and six million homes.
Under the severe feud of houses has been a problem for more than a decade. After the 2008 financial crisis, the construction of houses slowed down dramatically and never completely withdrawn. Limiting laws of zoning and increasing construction costs have made it difficult to build new homes at the necessary pace. In many areas, the high cost of breaking the ground in new construction stimulates builders to concentrate only on higher -level homes, leaving buyers for the first time with even less opportunities.
At the same time, the home demand is strong. The millennia, the largest generation in the country, are in their main years of building houses, and many are determined to buy. As long as market demand exceeds supply, home prices will remain strong.
https://www.youtube.com/watch?v=0b2fvmmkpae
2. Inflation keeps raised house prices
If you were in the grocery store, you have filled your gas tank or paid for any recent service, you have seen in the forefront how inflation affects prices. Housing is not different.
Inflation makes long -term rising pressure on prices. Upon arrival at the beginning of 2022, inflation began to ease after the series of increasing the interest rates of the federal reserve. But recent data show that consumer prices are rising again.
As inflation erodes the value of money, tangible assets such as real estate become more expensive. A house that cost $ 300,000 in 2010 would now be worth about $ 427,000 from inflation alone. Even if the housing demand is temporarily cooled, home values tend to increase over time simply because of the way our financial system works.
3. It costs a lot to sell a house
Selling a home is not simple enough to list it online and expect offers. It is a process that comes at considerable cost to sellers, including real estate commissions, closing costs, staging costs and possible repairs.
For many homeowners, selling is expensive and does not have much financial meaning. Sellers would better stay determined than to get a financial hit, and fewer houses in the market prevent prices.
4.
The effect of blocking the rate is one of the biggest reasons why existing homes are not hitting the market.
During the pandemic, millions of homeowners were locked in ultra -low mortgage rhythms, some to 2 to 3%. These homeowners are not eager to trade their sub-3% mortgage for a new one in 7%. Even with the increase in home values, many homeowners do not want to receive a significant higher mortgage payment for their future home.
Until the mortgage rates subtract significantly, many homeowners will stay located, keeping inventory and stable prices tight.
https://www.youtube.com/watch?v=ifbzcwtsez8
5. People who sell houses are also buying
Most sellers are also buyers. Homedo house that is sold is usually offset by another purchase. Unlike 2008, when the foreclosure flooded the market, today’s sellers usually move by choice, not out of necessity.
Demand for home has a lot of links to the stages of life. People get married, have children, move for work, reduce or look for better schools. Even in a high rate environment over the last two years, these factors have kept the housing market in motion.
6. Homeowners see higher value in their properties
People have a deep emotional connection to their homes, and this plays a role in prices. When homeowners see a neighbor’s home selling for the high dollar, they often believe their home is worth the same or more. Even in the slowest markets, homeowners do not want to accept lower offers unless they have to sell absolutely.
Unlike shares, where people are quick to reduce losses, homeowners tend to maintain their properties rather than get a perceived loss. This is another reason why house prices tend to be contagious, even during the economic downturn.
Would it lead a recession in lowering home prices?
I often hear the argument that house prices will fall if we enter a recession. While it is true that economic downgers can affect housing, most recessions do not lead to a significant decline in prices.
Historically, house prices have remained stable or even raised during recessions. Departures tend to affect lower -income workers who are less likely to be homeowners, and those who make home usually have enough capital to avoid desperate sales. Unlike 2008, where dangerous borrowing led to Foreclosure, today’s homeowners are in a much stronger financial position.
Why does it cost more to wait to buy a house
Over the last 60 years, house prices have estimated at an average rate of 4.6% per year. If you are waiting for a housing collision, you are betting against a trend that has been extremely stable.
Even if house prices are stalled, interest rates can stay high, which affects affordability much more than a slight drop in prices. And it can end up costing you more to wait. Renting instead of buying means losing your home capital years, and inflation will simply continue to make homes more expensive over time.
Tips for Home Buyers
If you are trying to decide if you are going to buy, focus on your financial situation than to try to do market time.
Financial stability: If you can afford a payment, make sure your estimated monthly mortgage payment is comfortable and stable. You also need to have enough money in the bank for closing costs, insurance, taxes and other homeowner tariffs.
Consider different markets: Not all real estate markets are created equal. Pay attention to what is happening in your specific area. At the time of this article, the inventory in Florida is growing while the northeast is still in very short supply.
Think long -term: Real estate has nothing to do with what will happen today or tomorrow, but more decades from now. As a general rule, plan to stay in your home for at least five or seven years so that short -term market fluctuations do not matter much.