For prospective homebuyers, the relentless increase in property prices continues to pose a challenge. Despite facing some of the highest mortgage rates in decades, home prices have shown no signs of decline. Are these trends indicative of an impending market crash? Experts weigh in on the future of the housing market.
Market Trends
The U.S. housing market, which had begun to cool off in late 2022, seemed poised for a correction. However, contrary to expectations of a market downturn, home values have resumed their ascent. According to the National Association of Realtors (NAR), June 2024 saw median existing-home prices reach a new peak of $426,900, a 4.1% increase from the previous year and the 12th consecutive month of price rises. This surpasses the May 2024 record of $419,300 and the previous high of $413,800 set in June 2022. Typically, late spring is when home prices are at their highest due to seasonal trends.
Supply and Demand Dynamics
The primary driver behind these record home prices is a classic supply-demand imbalance. Despite a modest increase in housing inventories, supply remains tight. NAR reported a 4.1-month supply of homes as of June. Even a surge in mortgage rates, which peaked at 8% in October 2023— the highest in over 23 years— has failed to curb price increases. Rates have since fluctuated but remained high, with a recent average of 6.90% as of July 24, according to Bankrate.
Greg McBride, Chief Financial Analyst at Bankrate, attributes the persistent price growth to the fundamental imbalance between high demand and limited supply. Rick Arvielo, CEO of New American Funding, echoes this sentiment, emphasizing that insufficient inventory means house prices are unlikely to decline. Zillow’s Chief Economist, Skylar Olsen, anticipates continued price increases through the year, with no immediate relief for first-time buyers.
Impact on Buyers
The surge in mortgage rates has significantly increased the cost of financing. According to Realtor.com’s May 2024 Housing Market Trends Report, monthly mortgage payments for the typical home have risen by 7.1% compared to the previous year, translating to an additional $158 per month. This affordability squeeze has contributed to a slowdown in home sales volumes, though inventory remains insufficient to meet demand.
Future Predictions
Housing economists generally foresee a modest market correction rather than a dramatic crash. Mark Fleming, Chief Economist at First American Financial Corporation, suggests that the supply-demand imbalance will prevent a significant price drop. Similarly, Dave Liniger, founder of RE/MAX, warns that even a potential decline in mortgage rates could trigger increased buyer activity, potentially driving prices higher once again.
Lawrence Yun, Chief Economist at NAR, does acknowledge small price declines in previously hot markets like Austin, Texas, but sees little likelihood of a nationwide price drop. Yun emphasizes that with current supply constraints, substantial declines akin to those of the Great Recession are improbable.
Key Market Statistics
As of July 24, Bankrate’s survey indicates the average mortgage interest rate for a 30-year loan stands at 6.90%. Existing-home sales fell by 5.4% from May to June and showed a similar decline year-over-year. The nationwide median sale price in June hit a new record at $426,900. The housing market had a 4.1-month supply of inventory, an improvement over earlier months but still below the 5 to 6 months needed for a balanced market. Foreclosure filings totaled 18,574 in June 2024, down 22.7% from the previous year.
Conclusion
Despite the current housing market’s high prices and ongoing affordability issues, experts do not foresee a crash on the horizon. Unlike the pre-2008 era, today’s market benefits from stringent lending standards, a cautious construction sector, and relatively low foreclosure rates. While the market may experience minor fluctuations and localized price declines, a repeat of the severe downturn witnessed during the Great Recession remains unlikely.
