Rising Housing Prices Have Now Begun to Slow Down
Rising housing prices have now begun to slow down as the price of homes reaches its slowest rising pace in nearly three years.
The reason behind slowing housing prices? Economists point towards high mortgage rates pricing new homebuyers out of the market.
Chief economist at Nationwide, Robert Gardner says housing market activity and price growth has slowed down in recent months due to an uncertain economy.
He also blames geopolitical tensions for higher energy costs.
“Market activity and house price growth have slowed in recent months, in part reflecting the uncertain economic backdrop.
Geopolitical tensions remain high, with the conflict in the Middle East exerting upward pressure on energy prices, fanning inflation concerns.
This in turn has led to mounting financial market expectations of Bank Rate increases, which have maintained upward pressure on the market interest rates which underpin mortgage pricing.”
Just like the United States, the UK has seen a rise in mortgage rates following the Iran war, which pushed inflation up to an 11-month high of 3.5pc in September.
Home Sales Are Also Dropping
Pending home sales have dropped to a new low since 2014 as rising mortgage rates have outpriced new homebuyers.
14.5% of homebuying deals fell through in September.
“Pending home sales declined 4% from a month earlier in September on a seasonally adjusted basis–the biggest monthly drop in more than three years,” says Redfin.
“This is a real-time indicator of what’s happening in the housing market; fewer homes went under contract in September largely because mortgage rates rose steadily, surpassing 7% by the end of the month.”
Home sales are having the biggest decline on the West Coast. Particularly in:
- Seattle (-24.4% year over year)
- Los Angeles (-16%)
- San Diego (-15.8%)
- Anaheim (-15.5%)
And it makes sense. Seattle, Los Angeles, San Diego, and Anaheim are some of the priciest cities in the West Coast, particularly in Southern California.
According to Redfin, closed home sales have also seen a decline nationwide.
For example, in September alone, closed home sales dropped 1.6% month over month to their lowest point since the end of 2023.
Economic uncertainty has been the blame.
Between inflation, rising home prices and mortgage rates, and artificial intelligence threatening job security, Americans are feeling uneasy with today’s U.S. economy.
Housing Costs May Return To ‘Normal’ In 5 Years, Says Senior Economist
Housing costs may return to normal in 5 years based on a few important and key factors, according to Redfin Senior Economist Asad Khan.
A report conducted by technology-powered real estate brokerage and online property database Redfin defines ‘normal’ as housing costs and mortgage-payment-to-income ratio returning to August 2018 levels.
During this time, the national median monthly mortgage payment-to-income ratio was 30%.
This meant that the typical U.S. homebuyers would need to spend 30% of their household income on their monthly mortgage payment.
This 30% is the benchmark for housing affordability.
Redfin economists now say that housing costs may return to normal within 5-10 years throughout the United States.
Senior Economist Asad Khan says that there’s not a one size fits all when committing to buying a new home.
The problem right now is that Americans are stuck with two really bad options.
Stretch themselves to buy at today’s high rates, or wait until rates come down while simultaneously seeing prices continue to skyrocket.
“But prospective buyers shouldn’t get hung up on timing the market,” Khan says.
“These hypothetical scenarios should give would-be buyers and sellers some hope that the market can normalize with only modest changes in rates or prices.
For buyers and sellers, that means the best time to make a move is when it makes sense for your finances and your life.
If you’re a buyer who needs more time to save for a down payment, take more time.
If you’re a buyer who has the means to buy at current costs and you find your dream home, don’t let today’s rates stop you.”
In other words, buy a new home when you’re ready, no matter the housing costs that are present in that point of time.
According to housing market analysts, the timeline for return to normalcy varies by region.
For now, housing prices may be slowing down, but buyers remain priced out of the market. And while economic uncertainty looms, experts say buying a home still makes sense today.
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