Home prices nationwide have just broken yet another record, with the national median listing price soaring to $405,000 for the first time ever, according to a recent Realtor.com® report.
This price is up 13.5% compared with this time last year—and up a whopping 26.5% compared with March 2020, when COVID-19 was officially declared a pandemic.
And yet even as the novel coronavirus recedes and spring’s homebuying season heats up, buyers are frustrated to find that there simply aren’t enough houses for sale.
“Home prices continue to rise because housing demand outpaces housing supply,” says Danielle Hale, chief economist of Realtor.com. “And the way the market balances that is by pushing prices up.”
Indeed, the number of active listings nationwide in March was down 18.9% from a year earlier—and down a whopping 62.3% from two years ago. That means that for every five homes that were for sale in March 2020, today there are just two.
Mortgage rates hit nearly 4.5%
As if high home prices weren’t bad enough news, homebuyers today are also contending with rising interest rates. The mortgage rate jumped to 4.42% for the week ending March 25 for 30-year fixed-rate loans, according to Freddie Mac. That’s the highest it’s been in three years.
And since the Federal Reserve is expected to raise its rates several more times this year, mortgage rates are expected to follow by continuing to climb.
Facing rising mortgage rates, record-high home prices, and very few homes for sale, more and more buyers are reaching a breaking point and calling off their house hunt, at least for now.
“In this month’s data we see signs of demand moderating in response to higher costs,” says Hale. “We’re seeing at least some buyers think twice in today’s housing market, given the high costs they face as home prices and mortgage rates both climb.”
Will home prices keep rising?
With homebuyers losing the will to forge ahead in this hostile market, does that mean that home prices might finally be near an inflection point where they start trending downward rather than up?
“As for where home prices may go from here, that depends on several factors,” says Hale. “First, even though construction is starting to catch up, we have a huge 5.8 million home deficit to build out of. For context, that would be five-plus years of construction at the recent pace, so that’s a long-term issue.”
In other words, the sluggish pace of new construction might continue to keep home prices high. Plus, homebuyers who’ve benefited from this hot job market might even have the extra cash to pay up.
“While demand has shown some signs of moderation, if buyer incomes start to rise faster because of the tight job market, that could help keep demand and home prices high,” Hale explains.
Seller expectations also play a role. Now that they’ve seen just how high home prices can go, they might not settle for anything less.
“Home prices are what economists call ‘sticky,’” says Hale. “Once they go up, people get used to the idea of a certain price, and for homeowners thinking about selling in particular, that becomes what they’re looking for in the market.”
Cities with a growing number of homes for sale
Rising mortgage rates and a hyper-competitive market might also be driving buyers to snap up homes at a faster pace than ever. Nationally, typical homes spent 38 days on the market in March, down 11 days from a year earlier and 21 days from March 2020.
Most places saw a decline in listings. In March, the number of homes for sale in the 50 largest metropolitan areas shrank by 16% compared with the same period last year. (Metros include the main city and the surrounding suburbs, towns, and smaller urban areas.)
Yet on the bright side, six cities (Riverside, CA; Sacramento, CA; Kansas City, KS; Detroit; Austin, TX; and Phoenix) saw an uptick in homes on the market. Six out of 50 is an admittedly small number, but it could signal that more urban areas could see a rise in the number of properties for sale as the weather warms up.