5 Real Estate Experts Agree That Home Prices Won’t Crash – Norada Real Estate Investments

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Forget the housing market is going to crash! Top real estate experts reveal WHY home prices are likely to STAY STEADY in 2024. Even though U.S. mortgage rates have doubled since before the pandemic and rising home prices have made homeownership more unaffordable, determined home buyers continue to fuel demand and push prices to even higher levels.

Home prices hit yet another record high in April, and frustrated prospective home buyers may be wondering if they should buy now or wait for home prices to fall. The reality, according to six economists who spoke with MarketWatch, is that prices are not likely to fall anytime soon — at least nationally.

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Mortgage rates have doubled since before the pandemic, and rising home prices have made homeownership more unaffordable, but the housing market is only getting more expensive as prices show no signs of falling. The economists, who either have worked or presently work in the real-estate industry, said that because demand continues to outpace the supply of properties for sale, it’s unlikely that home prices will fall too much.

The median price of a resale home was at an all-time high of $419,300 in May. With the 30-year mortgage rate averaging 6.87%, the median monthly mortgage payment is roughly $2,750, not including taxes, fees, and property insurance.

5 Real Estate Experts Agree That Home Prices Won’t Crash

“The U.S. housing shortage is still lingering based on our estimate of 4.5 million additional housing units that are required to make up for the gaps accumulated from population growth in the last decade,” said Lawrence Yun, chief economist at the National Association of Realtors. “Therefore, home-price declines appear unlikely.”

To be sure, there are a few markets — such as Austin, Texas, and Boise, Idaho — where home prices have declined, Yun said. In May, home prices in Austin were down 2.5% from the same month a year earlier, according to data from the American Enterprise Institute, the lowest among the 60 largest metropolitan areas in the U.S.

“However, with rapid job growth, the temporary improved housing affordability will be short-lived before prices are pushed up to new highs,” Yun added.

Hard to See Price Growth Changing Too Much

“Home prices are unlikely to fall because of continued demographic tailwinds. There are still plenty of millennials looking to get into the housing market,” said Chen Zhao, head of economic research at Redfin.

“However, with affordability being historically bad, price growth could slow in the coming quarters,” Zhao added. “The key piece of uncertainty is whether mortgage rates will fall as expected, and what will happen to prices when that happens.”

The housing market is currently hamstrung by a low level of housing inventory. With fewer homes than keen buyers, bidding wars have emerged, pushing home prices up. Inventory remains suppressed as many homeowners hold off on selling, uninterested in giving up an ultralow, once-in-a-lifetime mortgage rate.

“‘There are still plenty of millennials looking to get into the housing market,’ which is fueling home-buying demand despite affordability waning,” — Chen Zhao, head of economic research at Redfin

If that so-called lock-in effect eases, that could slow the rate at which home prices are rising, Zhao said. Nonetheless, in “either case, it’s hard to see price growth changing too much because affordability strains provide a ceiling while demographic pressures provide a floor,” she added.

It’s All About Inventory

Inventory is the most important piece of the housing puzzle, said Andy Walden, vice president of enterprise research at ICE Mortgage Technology.

“When it comes to home prices today, it’s all about inventory,” Walden said. “In markets where prices have softened at various points over the past two years, the common denominator has been inventory returning to or near prepandemic averages.”

The ICE home-price index for May shows prices falling in markets where inventory has spiked over the last 12 months, he added, such as in parts of Florida and Texas. For instance, in Cape Coral, Fla., inventory is up 87% over the last year.

“‘When rates decline and begin to improve affordability, the result has been increased demand … and subsequently stronger home prices. It’s a cyclical Catch-22,’” — Andy Walden, vice president of enterprise research at ICE Mortgage Technology

But inventory is still low in other parts of the country, he said, which is keeping prices high. And a drop in mortgage rates won’t necessarily help housing affordability, Walden said.

“In recent years, we’ve witnessed a pattern emerge: When rates decline and begin to improve affordability, the result has been increased demand … and subsequently stronger home prices,” he explained. “It’s a cyclical Catch-22 that will likely keep a floor under home prices in the near term, especially in the inventory-starved Midwest and Northeast.”

Nothing to Suggest a Major Home-Price Drop

But expect home-price growth to moderate further in the coming months, said Lisa Sturtevant, chief economist at Bright MLS, a real-estate-listings database.

“There is nothing to suggest a major home price drop in the U.S., but mortgage rates near 7% and home prices at record highs in many markets [both mean] that affordability is a growing challenge in 2024,” Sturtevant said. “As more and more home buyers hit the affordability ceiling and more inventory comes onto the market, there will be less upward pressure on home prices.”

Only a Significant Shock to the U.S. Economy Would Affect Home Prices

To be sure, home prices could crash — but only in the event of an economic catastrophe, said Selma Hepp, chief economist at the real-estate-data company CoreLogic.

“For home prices to fall, there would need to be a significant shock to the U.S. economy that would lead to massive job losses,” she said. “Still, as we saw during the pandemic, the continued imbalance between pent-up demand and lack of supply suggests that home prices have a floor and are unlikely to fall notably.”

Prepare for a Prolonged Period of Unaffordable Housing

The bottom line is that people looking to buy homes should get used to the new normal, the economists said. Mortgage rates at 3% were an aberration, and the historical average for the 30-year mortgage rate is around 6%.

Unlike during the Great Recession of 2007-09, when home prices crashed as a result of irresponsible lending and the subprime-mortgage crisis, “significant price declines are very unlikely this time around because market conditions are quite different,” said Ken Johnson, a real-estate economist at Florida Atlantic University.

“‘Significant price declines are very unlikely this time around, because market conditions are quite different,’” — Ken Johnson, real-estate economist at Florida Atlantic University

“The last housing peak was brought about by many factors, namely a huge oversupply in housing units,” he said. “Once prices began to fall, a foreclosure crisis broke out, creating an environment in which prices only had one path — significantly downwards.”

This cycle is different in that the U.S. has a steadily worsening housing shortage. As the population has increased, the housing shortage has grown to 4.5 million, according to a recent analysis from the real-estate brokerage Zillow.

“This time around, there is a major shortage in the supply of housing units, and the likelihood of significant price declines is very limited despite currently high mortgage rates,” Johnson said.

And while home prices may flatten and even fall in some markets in states like Florida, homeowners across the country should brace for “a prolonged period of unaffordable home prices relative to income levels,” Johnson said.


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