Demand is on the rise due in part to shifts in demographics, with millennials in their prime years for buying homes. Additionally, the increase in remote work on the back of the COVID-19 pandemic has allowed more people, and particularly young people looking for more affordable areas, to move farther from their jobs in major centers.
What will make the prices go down?
When either the supply increases dramatically or demand drops off, home prices will go down. Experts suggest that we are more likely to see demand drop. And a significant shift in mortgage rates is likely to act as a catalyst behind the potential drop in demand, experts say.
Since the beginning of 2022, the average 30-year fixed mortgage rate has increased by over two full percentage points, which has significantly impacted affordability for many home buyers. Mortgage rates have decreased buyers’ purchasing power for median priced properties by roughly 14%.
However, demand may not drop significantly simply because mortgage rates are increasing. Rather, the speed at which interest rates changed caused panic and lessened demand. In some markets, prices are already stabilizing. According to the NAR, sales of existing homes in May had dropped 3.4% from the month before and 8.6% from the May prior.
It should be noted that just because price growth slows, that does not necessarily mean home prices will go down—rather, they’re likely to simply increase by less than the current rate. In other words, home prices may increase by 3% instead of 20%, experts say. In order for house prices to go down, there will have to be changes in supply, such as an influx in newly built houses or people moving out of their homes and not just into other single-family properties.