Housing market prices are now falling in many markets. (Photo: Nasdaq)
Since early 2020, the housing market prices in the United States have been on a roller coaster ride. When the coronavirus pandemic hit that year, housing prices, the stock market, and the American economy all plummeted.
Housing market prices are now falling in many markets. Everyone wonders whether this is a short-term downtrend or something more serious and what the price drop means for buyers and sellers.
READ ALSO: Projected Home Value 2023: When It Will Become Too Expensive?
What Is the Root Cause of the Current Downtrend?
The housing market, like any other, is subject to the laws of supply and demand. Prices will rise and fall in response to the buyer-seller balance. But what influences this relationship in 2023, causing home prices to fall?
Too fast, too far
Home prices have doubled in some markets in less than two years. This was a remarkable move in a market that typically rises by only a few percentage points yearly. This sharp increase in prices has made homes more unaffordable, reducing demand.
Mortgage Interest Rates are Rising
The steep rise in mortgage rates is the other culprit in making homes unaffordable for most buyers. Whereas in 2020, homebuyers could enjoy record-low mortgage rates of less than 3%, even those with excellent credit may have to pay 7% or more. This means that payments on a $300,000 mortgage have increased from around $1,200 to close to $2,000.
What could cause it to come to a halt and/or reverse?
Housing market prices can shift quickly if the housing market has taught Americans anything over the last three years. Although the overall trend in American home prices is currently downward, this could change or even reverse in a few different scenarios.
Inventory Isn’t Really Expanding
When home prices rise rapidly, more homeowners are willing to put their homes on the market to profit. Home inventory has yet to expand despite recent price increases as Americans stubbornly hold onto their properties.
What Does the Downturn Mean for Buyers?
A downward trend in home prices is always beneficial to buyers. The issue for buyers is not that home prices are falling but that they have only dropped by a small amount and from extremely high levels. Buyers may want to wait until there is a true housing price correction before jumping in with both feet.
What Does the Downturn Mean for Sellers?
Like in the stock market, it’s difficult for sellers to exit at the absolute peak. Even if housing market prices fall slightly in 2023, most Americans who purchased a home in 2021 or earlier will have made a good-to-exceptional profit. Selling now may not get these homeowners their peak prices, but most areas remain a seller’s market. However, because of the high prices and mortgage rates, finding a buyer may take some time until prices have settled.
READ ALSO: Projected Home Value 2023: When It Will Become Too Expensive?
