The housing market is currently experiencing a standstill when it should be thriving. Sales of existing homes in March were down 22 percent from the year before, according to the National Association of Realtors. The inventory of unsold homes on the market at the end of March totaled 2.6 months' supply, which is half of what's needed to balance supply and demand.
Housing Market Gridlock / Standstill
Economists describe the situation as a "real gridlock," predicting that it will take time for the market to return to a normal supply-and-demand balance. The stalemate results from homeowners with low-rate mortgages delaying their decision to sell, hoping for more favorable market conditions.
Competition among buyers intensifies due to the scarcity of homes for sale, leading to bidding wars and driving up prices. Though down from recent highs, the average price of a house remains about 40 percent higher than at the beginning of 2020, as per the S&P CoreLogic Case-Shiller index.
For some homeowners, the prospect of higher interest rates and increased home values is discouraging them from selling. They hope that mortgage rates will fall and more affordable homes will become available in the next few years.
The average rate on a 30-year fixed-rate mortgage is 6.43 percent, as reported by Freddie Mac, which is more than twice what it was two years ago. Rates peaked above 7 percent late last year, but the decline since then has been slow and uneven.
According to a survey by John Burns Research and Consulting, the "magic mortgage rate" of 5.5 percent could be the key to motivating sellers. Over 70 percent of prospective home buyers surveyed were unwilling to accept a mortgage above that rate.
Industry experts believe that this transition period will continue into 2024 when more people will be willing to buy. The market may also find equilibrium as demand from frustrated buyers is met by home builders, who have historically provided first-time home and move-up opportunities.
A lack of inventory of existing homes appears to be pushing buyers toward newly built homes, a smaller market where sales have held up better. The National Association of Realtors forecasts that sales of new homes will increase 4.5 percent this year and 12 percent in 2024. It expects existing-home sales to drop about 9 percent this year and then bounce back in 2024.
Despite the current high interest rates, homeowners who plan to stay in their homes for longer than five years may not be significantly impacted. However, many homeowners are content to wait for more favorable conditions before listing their properties for sale.
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