Why Home Prices Are Still High Inspite of Higher Mortgage Rates

Hello Hampton Roads,

Have you noticed how homes are still selling over list price and prices in general have been appreciating while mortgage rates are higher?  Here's what I'm talking about: 
  • Today's mortgage rates stands at 7.4% for a 30-year fixed loan, and to give you some context on where rates used to be, consider that in January, 2021 they hit a low of 2.65%.  That's a huge delta!  
  • Sold home prices in Hampton Roads (detached homes on the Southside) have gone up 5.5% in 2024 year to date.
  • Why Home Prices Are High Inspite of Higher Mortgage Rates
So, if you've been thinking about this question like I have, let's unravel this mystery together.
Typically mortgage rates and housing prices have an inverse relationship with lower rates leading to higher prices and higher rates leading to lower prices. Lower rates mean that buyers have more money to spend which attracts more buyers to the market and drives up home prices while higher rates means buyers can afford less, leading to less competition and lower home prices.  So why aren't we seeing housing prices fall?

It all boils down to supply and demand – the age-old dance of buyers and sellers. Right now, there's a real shortage of homes available for sale.  With more folks looking for homes than there are homes to go around, sellers maintain the upper hand, and buyers bid up prices in competition. 

Here's what's keeping supply constrained: 
Remember those sweet mortgage rates folks snagged a few years back? Well, many homeowners are holding onto their properties, reluctant to give up those unbeatable financing terms. Even if they wanted to sell, they'd end up with a higher rate for a more expensive property that may not be as nice as as the home they have now. In the US, 63% of borrowers have a mortgage rate below 4%. This "lock-in effect" means fewer homes hitting the market, which only drives prices higher.

Baby Boomers are a big part of the equation, too. According to a Redfin article, they own 28% of the 3BR+ housing stock while millennials with kids own 14%.  Many do not have a mortgage or are close to paying it off. Instead of downsizing or moving, they're opting to stay put, further shrinking the pool of available homes for sale.

Lastly investors are also in the game. When rates were low many snatched up entry level homes to flip or rent, and given that many investors pay cash, it's hard for a home buyer to compete with a cash offer. This further reduced housing supply.

So, when you put it all together – the supply crunch, the lock-in effect, the baby boomers holding tight, and the investors playing their part – it starts to make sense why home prices are still elevated.   If you are a home owner thinking of selling in this market it could be a good idea given that the best homes are still selling over list price, but depending on your situation, selling may or may not make sense. If you are considering buying in this market, there are a number of programs that can assist with housing affordability for repeat and first time home buyers alike.  Let's talk about your best options in a free consultation call to fast track your real estate plans: https://calendly.com/liz-schuyler     

Thanks for Reading,


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