Last year was rough for homebuyers and realtors as a trifecta of forces made it harder than ever to buy a place to live. Or, at least the hardest in nearly three decades.
Mortgage rates neared 8%. Home sellers tend to lower their prices when rates are high. But the nation has been in the midst of a severe housing shortage, so without enough homes to meet demand, prices just kept rising.
"We've actually seen home prices continue to rise for six consecutive months," said Jessica Lautz an economist with the National Association of Realtors. The group reported on Friday that the median home price in 2023 was $389,800 — a record high. Meanwhile, the number of homes sold fell to the lowest level since 1995.
"The jump in interest rates that we saw last year really was a shock to the system," said Lautz.
It's not just that higher mortgage rates made it nearly twice as expensive to buy the same-priced home as a couple of years before. The higher rates also affected the supply of homes on the market. Lautz says people who already have a home and a low 2% or 3% mortgage rate are less likely to put their house up for sale, because to buy another one they'd get stuck with a much higher rate.
It was more difficult to buy new homes too.
"Home builders are being impacted by the jump in interest rates as well," says Lautz. "They have to borrow to build and it's become very expensive for them to do."
Outdated zoning rules are a big factor in the tight housing supply because they often limit construction of smaller homes packed more tightly together — exactly the dense type of housing that is more affordable to build and buy. Overly restrictive zoning, "has restricted private developers from building enough housing to keep up with demand," Tobias Wolf of the American Enterprise Institute testified before Congress this week.
Wait, there's hope for home buyers in 2024
But while all that sounds pretty dismal for anyone wanting to buy a home, realtors sense that things are about to improve for buyers.
"Mortgage rates are meaningfully lower compared to just two months ago, and more inventory is expected to appear on the market in upcoming months," said NAR Chief Economist Lawrence Yun.
Rates for 30-year fixed-rate mortgages continued to fall over the past week to 6.6% according to the mortgage industry giant Freddie Mac's weekly rate tracker.
And that is making realtors feel better about the months ahead.
"We're at a very interesting moment in the real estate market," said Lautz. The group does a monthly confidence survey of it's members. "We're actually seeing the optimism grow."
She says it's important to remember that people who just bought houses last month locked in their mortgage rates two or three months ago when rates were much higher. But she says her group is hearing from realtors that they're already seeing more interest from homebuyers.
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