Declining rates and a strong economy may embolden potential home buyers and could help the housing market turn a corner from last year’s doldrums when record high home loans costs and elevated pricing kept both buyers and sellers out of the market.
Mortgage rates peaked at two-decade highs in the fall of last year. This, plus elevated prices of homes, made buying a home the most unaffordable it’s been since the turn of the century.
But rates have been declining over the last few weeks and are now in the mid-6 percent range. And with a robust economy plus higher wages that Americans are seeing, the market will likely see a shift over the coming months, Mark Zandi, chief economist at Moody’s Analytics, told Newsweek.
“When looking back over the last couple of years when market activity picks up, when people feel like housing is a bit more affordable and you see a pickup in activity sale,” he said. “And the economy is strong, meaning the labor market, job market is very, very, good. Lots of jobs, low unemployment. Wage growth has improved and that’s another good strong fundamental.”
The sticking point as to how fast the market rebound hinges on prices, which continue to be elevated, Zandi said.
The median sale price of a home as of January 21 stood at more than $362,000, a 5 percent increase from a year ago in what was the biggest increase since October 2022, according to real estate platform Redfin. The median asking price was also elevated, jumping by 6.5 percent to about $384,450.
“I do think we need to see some moderation in house prices, you know, if not outright declines, then flat prices for a while to allow incomes to catch up and affordability to be restored,” Zandi told Newsweek.
Joe Raedle/Getty Images
Prices will decline should the used homes market, which has frozen as sellers are reluctant to give up their old rates and replace them with costly home loans. A shift in that segment of the market may improve affordability, Zandi said.
“Once they start moving, and I suspect we’ll see more and more of those folks moving in the coming year, they’ll have to become somewhat aggressive on pricing, they’re going to have to lower their price,” he told Newsweek.
Over the next months, single-family housing construction is likely to recover the quickest due to severe shortages in that space and other segments of the market are likely to catch up as mortgage rates and the economy improves.
“House prices, they’ll be the last to recover,” Zandi said. “I think they kind of go sideways, down, for two to three years to let incomes and mortgage rates catch up and affordability is restored.”
Uncommon Knowledge
Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.
Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.
