One of the most common questions that I get as a real estate professional: “When will house prices drop?”
This makes sense, of course, the titles predicting accidents, recession and slowdowns of the market. The purchase of a house is a huge financial decision, and it is natural to wait for the housing market to become more affordable.
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Except that real estate does not behave as many people think. Of course, the value of the houses can fluctuate, but the prices are blocked at record peaks. We can partially blame inflation, which makes you more expensive. We can also blame a shortage of massive housing to maintain competition. Through most of the United States, we still do not have enough houses available for those who want to buy them.
It is my real estate agent work to tell my customers never to rush to buy the first house they see. But if you are still sits on the sidelines while waiting for a major drop in the prices of houses, you may be waiting forever.
The prices of houses do not dive anytime soon
Many people think that real estate is like a stock – prices are increasing, prices drop. If you timed the market, you can access the lowest possible price. Except that houses are not at all like actions.
The prices of houses do not suddenly drop. A combination of factors prevents them from lowering considerably, supply and demand to inflation, mortgage rates to the emotional attachment of owners to their properties.
I have been in the real estate industry for a long time to know that the slowdowns of the accommodation do not occur in a vacuum. Diving into the main reasons why a significant drop in prices on the current market is unlikely.
1. The supply is low, the demand is high
Basically, the housing market is motivated by supply and demand. When there are more buyers than available houses, prices are increasing. Depending on the report you read, the United States is short of four and six million houses.
The serious sub-proplore of houses has been a problem for more than a decade. After the 2008 financial crisis, the construction of houses slowed down considerably and has never fully fell. Restrictive zoning laws and the rise in construction costs made it difficult to build new houses to the necessary rate. In many areas, the high cost of setting up new construction encourages manufacturers to focus only on high -end houses, leaving even fewer options to buyers.
At the same time, the demand for houses is strong. The millennials, the largest generation in the country, are in their first years of house purchase, and many are determined to buy. As long as market demand exceeds supply, the prices of houses remain solid.
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2. Inflation maintains the prices of high houses
If you have gone to the grocery store, filled your fuel tank or paid lately, you’ve seen first -hand how inflation affects prices. The accommodation is no different.
Inflation exerts long -term pressure on prices. After peaking at the beginning of 2022, inflation began to relax after the series of interest rate increases in the federal reserve. But recent data show that consumer prices increase again.
While inflation erodes the value of money, tangible assets and real estate become more expensive. A house that cost $ 300,000 in 2010 is now worth around $ 427,000 just inflation alone. Even if the demand for housing is temporarily cooled, the value of houses tends to increase over time simply due to the operation of our financial system.
3. It costs a lot to sell a house
Selling a house is not as simple as listed it online and waiting for offers. This is a process that includes significant costs for sellers, including real estate commissions, closing costs, staging expenses and potential repairs.
For many owners, the sale is expensive and does not have much financial sense. Sellers prefer to stay there rather than take a financial blow, and fewer houses on the market prevent prices.
4. The overflow rate effect freezes the offer
The rate rate effect is one of the main reasons why existing houses do not strike the market.
During the pandemic, millions of owners locked ultra-basic mortgage rates, some as low as 2 to 3%. These owners are not impatient to exchange their mortgage less than 3% for a new to 7%. Even with the value of the rises, many owners do not want to make a much higher mortgage payment for their next house.
Until mortgage rates drop considerably, many owners will remain in place, keeping a tight inventory and prices are stable.
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5. People who sell houses also buy them
Most sellers are also buyers. Each house that is sold is generally offset by another purchase. Unlike 2008, when the seizures flooded the market, today’s sellers generally move by choice, and not by necessity.
The demand for houses has a lot to do with the stages of life. People get married, have children, move for jobs, reduce or look for better schools. Even in a broadband environment in the past two years, these factors have moved the housing market.
6. The owners see a higher value in their properties
People have a deep emotional link with their house, and it plays a role in prices. When the owners see a neighbor’s house sell for the better dollar, they often believe that their house is worth the same or more. Even on slower markets, owners are reluctant to accept lower offers unless they are absolutely for sale.
Unlike actions, where people are quick to reduce losses, owners tend to keep their properties rather than taking perceived loss. This is another reason why house prices tend to be sticky, even during economic slowdowns.
Would a recession lead to a drop in prices for houses?
I often hear the argument according to which the prices of houses will drop if we are entering a recession. If it is true that economic slowdowns can have an impact on housing, most recessions do not lead to a significant drop in prices.
Historically, the prices of houses have remained stable or even increased during recession. Releases tend to have an impact on low -income workers who are less likely to be owners, and those who have houses generally have enough equity to avoid sales in difficulty. Unlike 2008, where risky loans have led to seizures, today owners are in a much stronger financial situation.
Why it costs more to wait to buy a house
Over the past 60 years, house prices have appreciated at an average rate of 4.6% per year. If you are waiting for a housing accident, you are betting against a trend that has been remarkably consistent.
Even if the prices of houses stagnate, interest rates could remain high, which affects affordability much more than a low drop in prices. And it could end up costing you more to wait. Rental instead of buying means missing years of equity, and inflation will continue to make houses more expensive over time.
Tips for house buyers
If you try to decide to buy, focus on your own financial situation rather than trying to time the market.
Financial stability: If you can afford a deposit, make sure that your projected monthly mortgage payment is comfortable and durable. You should also have enough money to the bank to close the costs, insurance, taxes and other owner costs.
Consider different markets: Not all real estate markets are created equal. Pay attention to what’s going on in your specific field. At the time of this article, Florida Inventory increased while the northeast is still very short.
Think in the long term: Real estate does not concern what will happen today or tomorrow but rather decades. As a rule, plan to stay at home for at least five or seven years so that short -term market fluctuations do not have much importance.
