“What’s Going on with Real Estate?”

Given this broad impact, I have recently received quite a few questions about the general state of the real estate market that you may also be curious about:

• What’s happening with real estate right now?

• Are home prices destined for a decline?

• What’s the outlook for interest rates?

• And many more.

Before I jump into these questions, I will lead with the disclaimer that I am (obviously) not a real estate professional. I do, however, pay close attention to what’s happening in the real estate market and, given the recent interest, I thought it would be worthwhile to share what I’ve heard from real estate professionals and been reading across various sources to help you make sense of it all.

Let’s start with a general overview of the market.

According to Redfin, this is the most lopsided market we’ve experienced in more than a decade, with 500,000 more sellers than buyers[1]. It’s pretty staggering.

Beyond that, interest rates remain much higher than during the zero-interest-rate-policy era from 2009-2021[2], and it seems unlikely that we’ll see those low rates again anytime soon.

This imbalance between buyers and sellers, along with higher interest rates, has caused houses to sit on the market for longer today than they once were[3].

But if houses are sitting, why are prices still so high?

This may be anecdotal, but I’ve heard from a few agents that (generally speaking) many home sellers seem to think that it’s the same market as it was in 2022, and so they are reluctant to lower their prices[4]. Then, on the other end of the spectrum, home buyers seem to think it’s 2008 all over again, so they’re unwilling (or unable) to pay these prices. Hence, the lopsided market.

I think a major reason for this pseudo-stalemate is that this combination of high prices and high interest rates has priced many people out of the market since most non-cash buyers don’t “buy a home price,” they “buy a payment.”

What I mean is, if the prospective homebuyer can afford the payment, then the home price is largely irrelevant. But, since the average 30-year mortgage rate has fluctuated between 6%-8% for almost three years now[2], the resultant payments have become unaffordable for many potential buyers.

In terms of real-world numbers, the median mortgage payment has increased from $1,525 in 2021 to $2,205 earlier this year[5]. That’s nearly a 50% increase in just four years, so it makes sense that the housing market has come to a bit of a standstill.

With interest rates driving the home buying decision for many buyers, the number one question I’m hearing from both potential buyers and sellers is,

“When will interest rates start to meaningfully decline?”

Unfortunately, that’s an impossible question to answer.

With the uncertainties around inflation, the Fed[6] seems to be firm in its approach of “higher for longer.” But if inflation declines (which few economists are expecting right now[7]), then rates could come down. However, it seems unlikely that rates would drop rapidly given the Fed’s cautious approach to lowering rates thus far.

As you’ve probably figured out, this means we’re living in a wait-and-see environment. Who will win this tug of war between buyers and sellers is anybody’s guess. Will interest rates come down before homeowners meaningfully reduce prices? Or will homeowners stand by their pricing and force the hands of buyers?

Obviously, these answers are largely buyer and seller dependent. Not everybody can afford to wait to buy or sell. They simply need to move for one reason or another, so some homes will continue to change hands. But when it comes to the broad real estate market, it’s hard to say how this will ultimately play out.

It may not be what anyone wants to hear, but we’ll just have to wait and see.

If this note sparks any questions or concerns, I’m happy to chat. As always, stay the course!