Why Are House Prices Not Falling?
Recently there have been many changes in the housing market. Mortgage rates surged last year, affecting many people’s ability to buy a home. And after several years of rapid price increases, home prices finally peaked last summer. These changes have led to an increase in headlines saying that prices will eventually crash.
While we no longer see the shopping frenzy that drives home values up during the pandemic, prices have remained relatively stable across the country. Lawrence Yun, chief economist at the National Association of Realtors (NAR), doesn’t expect that to change:
“[H]ome prices will be steady in most parts of the country with a minor change in the national median home price.”
You might think that sellers should lower prices to entice buyers in today’s market, and that’s part of the reason why some people may be waiting for prices to drop. But there is another factor at play – low inventories. And according to Yun, this limits the discount:
“We simply don’t have enough inventory. Will some markets see a price decline? Yes. [But] with the supply not being there, the repeat of a 30 percent price decline is highly, highly unlikely.”
As you can see in the graph below, we’ve been at or near record-low inventory levels for a few years now.
That lack of available homes on the market is putting upward pressure on prices. Bankrate puts it like this:
“This ongoing lack of inventory explains why many buyers still have little choice but to bid up prices. And it also indicates that the supply-and-demand equation simply won’t allow a price crash in the near future.”
If more homes don’t come to the market, a lack of supply will keep prices from crashing, and, according to industry expert Rick Sharga, inventory isn’t likely to rise significantly this year:
“I believe that we’re likely to see low inventory continue to vex the housing market throughout 2023.”
Sellers are under no pressure to move because they currently have a lot of equity. This equity acts as a cushion for the homeowner, reducing the risk of hard sales such as foreclosure and short sales. And with many homeowners tied to low mortgage rates, that equity cushion isn’t going away anytime soon.
With so few homes available for sale today, it’s important to work with a trusted broker who understands your area and can navigate the volatility of today’s market.