Although inflation might be easing ever so slightly, don’t expect prices to come down anytime soon, including housing prices.
Despite the prospect of improving interest rates on the not-too-distant horizon, experts say home prices won’t be declining any time soon. In fact, housing prices are even expected to rise as a result of the boost in demand.
Experts expect the number of buyers waiting for houses to become more affordable to continue driving prices up despite those prices already being at record highs. It’s a simple case of demand outstripping supply.
Even the recent slight improvement in mortgage rates that led to record refinancing applications didn’t impact home sales.
“The slight decline in mortgage rates of late, following data pointing to gradually slowing economic growth, has not been enough to overcome the significant affordability constraints imposed on would-be homebuyers,” said Doug Duncan, senior vice president and chief economist at Fannie Mae, at the end of July, reported Fox Business. “As such, despite more homes being listed for sale, actual home sales have not picked up.”
Federal Reserve chair Jerome Powell strongly hinted that interest rates are likely coming down soon during his much-anticipated remarks on Friday morning at the annual gathering of central bankers in Jackson Hole, Wyoming.
Markets and many economists believe it’s all but certain the Fed will cut rates in September for the first time since post-pandemic supply chain disruptions sent prices soaring, as inflation appears under control and the job market weakens.
One of the most painful ways higher interest rates have impacted Americans is through higher housing costs. The combination of high borrowing costs and skyrocketing home prices and rents — caused by a housing shortage — has created an enduring housing affordability crisis.
But the impact of lower rates on affordability is complicated. On the one hand, lower borrowing costs would likely make mortgages cheaper for buyers and encourage builders to construct desperately needed new homes. But in the short term, a rate cut could trigger a rush of buyers to enter the market, overwhelming any new supply and driving up competition and prices. A rate cut “would probably result in more competition because demand would grow more than supply would,” Daryl Fairweather, chief economist at Redfin, told Business Insider.