The housing market has been in a weird place this year. Even as mortgage rates surge, home prices have mostly continued to rise. With that said, the winds of a cooling housing market are hard to deny. Demand for homes is falling. That leaves many would-be homebuyers wondering when — or if — home prices will ease.
First and foremost, home prices aren’t likely to decline because of limited home construction in the United States. While interest in buying skyrocketed at the start of Covid-19, real estate construction slowed to an absolute crawl. Home builders were already constrained following the 2008 housing market crash. The pandemic only decelerated the industry even further. Add in global supply slowdowns — especially for raw materials like lumber and metals — and it’s not hard to see just how bottlenecked construction has become.
Per Redfin data, which is updated weekly, the U.S. currently has a roughly two-month supply of available homes. This is a far cry from the five-to-six month stockpile the country has typically enjoyed. Even as buying conditions worsen, if home construction doesn’t ramp up, prices are unlikely to truly fall.
The last point against a drop in home prices relates to the health of mortgage owners. Mortgage debt as a percentage of disposable income is close to its all-time low. Low interest rates and climbing real estate prices have meant mortgage owners are soaking up equity for relatively small loan payments. Credit scores are solid, meaning default rates are unlikely to see a sudden jump, which would increase the supply of homes for sale and lower prices. As home prices continue to rise, owners are less incentivized than ever to sell.
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