High Mortgage Rates and Low Housing Supply

We are frequently asked two main questions about housing prices: (1) when do you expect mortgage rates to go down, and (2) what is the best time for us to buy or sell our home?

While it would be nice to have a crystal ball into the future to determine how interest rates will change , the answer to the first question varies, depending on which economist you listen to and whether the continual rate hikes are finally determined to slow inflation. Some experts are predicting a drop in rates from the 7.7% range of today (October 2023) to around 5.5-6% by mid 2024. Others see rates continuing to push into 8% territory and higher.

It goes without saying that higher interest rates have drastically affected purchasing power. If you are considering a 30-year mortgage and have $3000/month for a home payment, the top of your price range has shrunk from around $600,000 to about $420,000 according to Redfin. To make matters worse, the limited supply of available properties has kept prices persistently high, despite a softening of the market in late 2022 to early 2023. Not since 1985 has housing affordability been so low in the United States.

Despite mortgage rates that have more than doubled in the past two years, demand is still high and housing supply is low. New construction starts have not caught up and some sellers are waiting longer to list because they are unsure of where they would move and due to fears of paying a new mortgage at a higher rate. The imbalance between scarce supply and persistent demand tips the scales in favor of sellers who can still experience bidding wars when their homes are priced competitively. The stay-at-home directives of 2020 and other impacts of the pandemic have brought more people into the housing market than ever before, and that trend has continued for nearly four years. High demand and low inventory – despite high mortgage rates – result in stubbornly expensive housing prices.

So, what is the best time to buy or sell a home? Several experts predict that with supply and demand still significantly askew, when mortgage rates start dropping, housing prices will skyrocket again. Buyers could flood the market with pent-up savings, competing with one another, pushing the cost of homeownership higher than ever before. Buyers might decide that purchasing a home now and refinancing later is a good investment strategy to prevent potentially overpaying in the future. The same strategy could be considered by sellers who will be purchasing different property with the proceeds of their sale. At the end of the day, we come back to our trusted advice. The “right time” to buy or sell a home is when it works for you!