Will the US Housing Market Experience a Slowdown in the Near Future?

The affordability – or lack thereof – of housing has been a prominent issue in the United States for years now. People eager to buy their first home have been waiting since the COVID-19 pandemic began in 2020 for the market to slow down, ideally making buying a home more affordable. So, will we see that slowdown in the near future or are we already into one without knowing it? That depends on a few factors:

Interest Rate Hikes

The Federal Reserve’s fight against inflation caused by the pandemic’s effect on the economy has also affected the housing market. Essentially, the Central Bank has raised the Federal Funds Rate – or the prime interest rate that banks borrow from the Federal Reserve or each other – 11 times in the past 18 months.

One of the many affects of this strategy is it causes banks to raise interest rates on loans, including mortgages. Recently, the national average for a 30-year fixed mortgage rate reached 7.23% – the highest level in more than two decades. But has that caused the type of slowdown prospective buyers were hoping for?

What the Data Says About a Slowdown

To some extent, the market has slowed down from its peak years of 2020 and 2021. Whether that has led to sufficient home affordability will depend on each individual’s situation. Existing home sales have continued to drop as they did last year.

Zillow recently predicted that home prices will rise 6.5% between the end of July 2023 and July 2024, up from 5.5% in their previous forecast. While this represents a serious potential increase, it’s far outpaced by both 2020 (11.3%) and 2021 (17.8%). So, costs are still going up, just not at the rate they were before. The S&P CoreLogic Case-Shiller National Home Price Index, which measures home prices across the United States, has been on the rise again since February of this year, after a multi-month decline in the second half of last year.

What Factors are Keeping Costs Up?

There are multiple factors that are working to keep the cost of housing high. One harkens back to the mortgage rate increase mentioned above. People who may have been looking to upsize, downsize, or otherwise move from one single-family home to another aren’t interested in selling because the mortgage rate they have now is so much lower than the one they’d end up with in a new home.

Additionally, housing remains relatively scarce in the United States. New home builds are on the rise, but there’s still a long way to go before supply begins to meet demand. Until then, it will be a seller’s market.

If you’re trying to navigate the complex and stressful world of home buying or selling, Atlas Valuation can be your guide. Our experts specialize in everything from home appraisals to legal disputes to purchase negotiations to estate closure and more. Call 334-737-6993 to get started today!