What Needs to Change in the Housing Market

A couple months back, I wrote about our house and the process of purchasing it. At the time, interest rates felt high (they still do) and prices felt high as well (and also still do.) In that post I addressed why we chose to buy at that time. I have both clients and personal friends who are waiting to jump into the housing market, wondering when the mortgage or down payment will feel right, so I wanted to talk about the future factors that may make an entrance to the housing market easier for some.

The Housing Market and Interest Rates

One of the obvious factors keeping a lot of would-be homeowners on the sidelines is the present interest rate. On a 30-year mortgage, with an 800+ credit score, the interest rate is still hovering at about 7.3%. That interest rate truly does balloon payments, especially when compared to the 3% or lower interest rates we know were received only a few years ago.

Image credit: Google, Accessed on 04/24/2024

So why have interest rates stayed so high? In short, too many people are employed and inflation is still too high. The Federal Reserve Board (“The Fed”) makes the national decisions about interest rates. Their job is to keep inflation low and a unemployment low at the same time. Unfortunately, these to things are diametrically opposed. From a macroeconomics perspective, when employment is high, inflation tends to go up as people have more dollars to spend on the same goods.

Basically, The Fed won’t cut interest rates until inflation goes down. When inflation goes down, it’ll likely be because fewer people have good paying jobs. And when fewer people have jobs that pay them well, the Housing Market will suffer from a scarcity of buyers (who can’t afford a new mortgage.) Theoretically, this will push prices down.

But, what if it doesn’t?

The Housing Market and Home Prices

There is a high correlation between home prices and inflation. In fact, it’s a useful correlation. I often have clients invest in real estate funds specifically because of this correlation. That said, inflation is not the only thing that drives growth in housing prices. There are a litany of other factors involved in housing prices, and one of them is scarcity. As of 2022, we were at a record low in housing availability and while we have recovered from that slightly in 2024, we are still at about half the historical average for housing inventory on the market in this country.

The question that is unanswerable, and that I addressed as a concern in my prior post about home buying, is how much demand is going to rush back into the market when interest rates drop? Will it be more, less, or equal in scale to the amount of new listings that enter the housing market when the drop happens? That may have a large effect on home prices.

Interest Rates, Home Prices, and Your Payment

The reason I bring up interest rates and home prices together, is those two things hugely influence the mortgage payment you should expect to pay. The size of the change matters, but any decrease in either of those two values should improve payments. For an average home in the greater Raleigh area, for instance, you can expect something just less than $500,000 currently. Here’s what one of those payments look like.

Image Credit: Google

With two good incomes and a solid amount of savings, a couple could technically afford a home these days. But, it’s certainly a much larger burden than it should be.

If you’re thinking about entering the housing market right now, I wish you good luck. I hope that you are able to purchase at a lower interest rate and/or a lower price in the near future. A change in either may make your payment more affordable and a drop in both is certainly something to jump on as an opportunity!

Share This Post
Share on facebook
Share on twitter
Share on linkedin
Share on pinterest
Share on email
Continue Reading
”What Can Brown Do For You?” UPS came out with this very effective and somewhat memeable slogan back in the day. The…