Demographic changes, such as millennials being in the prime of home buying, are driving demand. Additionally, the increase in remote work due to the impact of the COVID-19 pandemic has enabled more people, especially young people looking for more affordable areas, to move away from their jobs in major centers. became.
What is the reason for the price drop?
If supply increases dramatically or demand decreases, house prices will fall. Experts suggest that demand is likely to decline. Also, a drastic change in mortgage rates is likely to act as a catalyst behind a potential drop in demand, experts say.
Average 30-year fixed mortgage rates have increased by more than 2 percentage points since early 2022, significantly impacting affordability for many homebuyers. Mortgage rates have reduced the purchasing power of buyers on median properties by about 14%.
However, just because mortgage rates are rising doesn’t mean demand will drop significantly. Rather, the rapidity of interest rate changes caused panic and reduced demand. In some markets, prices are already stable. Sales of existing homes in May fell 3.4% from the previous month and 8.6% from the month before May, according to the NAR.
Keep in mind that slowing price growth doesn’t necessarily mean home prices will go down. That means house prices could rise by 3% instead of he 20%, experts say. For house prices to fall, there needs to be a shift in supply, with an influx of new homes and people moving out of their homes, not just other single-family homes.