Why do housing prices keep climbing?
The rise in home prices is likely a result of a resilient job market, persistently low housing inventory and robust buyer demand. Even with mortgage rates hovering in the 6-7% range — which is significantly higher than pre-pandemic levels — buyers remain motivated by fears of even higher prices and lower home inventory in the future.
A report from the U.S. Bureau of Labor Statistics states that total nonfarm employment rose by 151,000 jobs in February, while the unemployment rate remains relatively low at 4.1%. Most economic experts generally consider an unemployment rate between 4% and 5% to be healthy.
As of the end of February, America’s inventory of unsold homes stood at 1.24 million units, which is up more than 5% from January, reports NAR. At the current monthly sales pace, 1.24 million units would be the equivalent of a 3.5 month supply, which is far below the six-month supply that is traditionally considered a balanced market between sellers and buyers.
This tight market puts upward pressure on home prices, with buyers either adjusting their expectations, opting for smaller properties or stretching their finances further to secure homes before prices climb even more.
“We are still in a relatively tight market condition,” Yun shared with CNBC.
Interestingly, first-time homebuyers are entering the market in greater numbers, making up 31% of all sales in February, which is up from 26% the previous year. However, investor purchases have slowed significantly, dropping to just 16% of transactions, which is down from 21% last year.
This shift suggests that more owner-occupants or second-home buyers are competing directly in the market, often with cash purchases, maintaining price stability despite higher borrowing costs.
Invest in real estate without the headache of being a landlord
Imagine owning a portfolio of thousands of well-managed single family rentals or a collection of cutting-edge industrial warehouses. You can now gain access to a $1B portfolio of income-producing real estate assets designed to deliver long-term growth from the comforts of your couch.
The best part? You don’t have to be a millionaire and can start investing in minutes.
Learn MoreHow could this impact your next real estate purchase?
To navigate this challenging real estate market, buyers may need to adjust their approach, potentially revising expectations regarding home features or considering properties in less competitive markets.
Exploring alternate financing options can provide some relief, but they often come with some drawbacks. Products such as adjustable-rate mortgages, interest-only loans and balloon mortgages can be beneficial in the short term, but they may lead to significant financial challenges if buyers do not fully understand the terms and long-term implications.
Buyers may also find it worthwhile to buy a home now and consider refinancing later if/when mortgage rates drop. Refinancing can lower monthly payments, reduce total interest paid or shorten the loan term. However, buyers should carefully evaluate refinancing costs, including fees and closing costs, to ensure this approach is appropriate based on their financial situation.
Lastly, timing may also play a crucial role. Buyers who can be flexible and wait for traditionally quieter buying periods, such as the fall or winter seasons, might benefit from decreased competition and enhanced negotiating power.
For current homeowners, rising home prices can offer advantages.
"Each one percentage point gain in home price translates into an approximately $350 billion increase in housing equity for American property owners," Yun shared with NAR.
Homeowners selling in the current market may find themselves with increased equity, providing additional cash to leverage toward their next purchase or investment.
The richest 1% use an advisor. Do you?
Wealthy people know that having money is not the same as being good with money. Advisor.com can help you shape your financial future and connect with expert guidance . A trusted advisor helps you make smart choices about investments, retirement savings, and tax planning.
Try it now
