Summer’s over, kids are back in school, and pumpkins and mums adorn steps and walkways across America. As the frenzy of this last home-buying season winds down, the question on a lot of minds is whether home prices start coming back down. I’m not going to read tea leaves, but while several factors indicate prices might stop rising, there’s not much to support the notion that prices will reverse course and actually move in the other direction.

Short supply

At the outset of Covid-19, the supply of houses in the United States was already low, something that goes back to the housing crisis in 2008. We measure supply of houses by the number of months it takes to sell all the homes currently on the market given the current rate of sales. At the housing bubble’s peak, there was a 12.2 months’ supply of houses in the U.S. But in the wake of the housing crisis, demand went away and new home construction came to a screeching halt. By January of 2013 the number of houses had plummeted to only a 4 months’ supply.

At the onset of Covid-19, housing supply had improved some, but by August of 2020, it had dipped to  a historic low of only 3.5 months. Fortunately, things have improved and we have around the same supply of inventory we had just before Covid-19. But remember, that was low to begin with. With a low supply of houses and demand remaining healthy, there’s no fundamental pressure for home prices to come down. 

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Historic low mortgage rates

Mortgage rates have reached historic lows since the start of the pandemic, a result of the Federal Reserve’s monetary policy during the crisis. This has driven buyers into the market who otherwise would not be there. Recently, the Fed announced that it might begin “tapering” its injection of money into the economy to keep inflation in check. This will certainly impact mortgage rates. But the taper is likely to be slow and steady, and many economists believe mortgage rates will remain very low, rising only to 3.5% by the end of 2022.

The effect on home prices? Higher mortgage rates means fewer buyers, which means less buyer competition. With fewer bidding wars, home prices might stop rising at crazy rates. But given a slow rise in interest rates and continued demand, prices are not likely to come back in the other direction.

Remote workers making moves

Many workers who can now work remotely were unable to purchase during the spring and summer months because of the lack of inventory. Many became fatigued and sat it out, opting to wait until the fall. Which means activity hasn’t slowed much since the vacation season ended and kids went back to school. I have several clients like this, and they’re benefiting from fewer buyers to bid against right now. But again, right now this is slowing rising prices, not causing prices to fall.

A note on asking price: Some sellers are still pricing their houses well beyond their appraised value. Consequently, I’m seeing a lot of price reductions on these after they’ve sat for a while. These reductions don’t necessarily mean prices are coming down; in most cases, the house was priced too high to begin with.

Wave of first-time home buyers

The wave of first-time home buyers would have been the housing industry’s top news story had it not been for Covid-19. Millennials are the fastest-growing segment of home buyers, and their preference for the suburbs contributes to the shortage of houses we see there. I mention these first-time buyers here because they make up 23% of the buyers out there right now — a big contribution to demand.

If you’re waiting for housing prices to fall, consider the factors of supply, mortgage rates, and the demand generated by both remote workers and first-time home buyers. If a house comes on the market that you want, act on it. After all, prices won’t come down without strategic offers from someone like you. Waiting for prices to come down should not keep you from going after the home of your dreams.