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The Federal Reserve's ongoing battle with inflation, which has surpassed 3% for the first three months of 2024, has resulted in mortgage rates ticking up, with the average 30-year mortgage rate now exceeding 7%. With inflation moving unfavorably and interest rates remaining high, prospective homebuyers are left grappling with elevated home prices and borrowing costs.
In December, the Fed hinted at multiple interest rate cuts in 2024, expecting softer inflation figures. However, the agency has paused interest rates at six consecutive meetings, delaying any potential rate cuts. Consequently, individuals considering purchasing a home may be reassessing their plans or taking a wait-and-see approach. But what can be expected in terms of home prices if mortgage rates persist at elevated levels?
Here are insights into potential scenarios regarding home prices if mortgage rates continue to stay high, as provided by experts:
Home prices will rise:
Brad Dillman, chief economist at RPM Living, anticipates that home prices, as measured by the Case-Shiller National Index, will likely resume an upward trend. This expectation is supported by low inventory levels resulting from the underbuilding of single-family homes in the 2010s, alongside demographic factors such as millennial demographics, significant immigration, and a relative scarcity of available inventory for sale.
According to Mason Whitehead, branch manager at Churchill Mortgage, there is pent-up demand for homes, with the belief that rates will decrease in the future. Therefore, buying a home at current prices and refinancing later when mortgage rates decline might be a prudent strategy.
Home prices are unlikely to fall:
Despite elevated mortgage rates, experts do not foresee a national-level decline in home prices due to the prevailing shortage of supply driving up demand. However, certain markets may exhibit distinct supply-demand dynamics, potentially leading to localized deviations from national trends. States with high demand, such as Texas, Florida, and Tennessee, are expected to maintain stable or increasing prices due to factors like job growth and a lower cost of living.
Home prices will remain the same:
Afifa Saburi, a capital markets analyst at Veterans United Home Loans, suggests that higher rates and lower inventory levels will likely result in home prices holding steady, with minimal movement in either direction. Unless there is a significant drop in rates or a substantial increase in inventory, home prices are expected to remain relatively unchanged. Mortgage rates would need to decrease to around the 4% range for substantial activity to occur, with most forecasts indicating mid-6% rates in the foreseeable future.
In conclusion, regardless of whether home prices rise, fall, or remain stable, buyers and sellers should monitor local supply and demand dynamics to gauge their local market. Additionally, buyers should assess their ability to comfortably manage mortgage payments and associated costs. Comparing multiple lenders and obtaining pre-approval can facilitate swift action when finding a desirable home.