Wells Fargo economists highlighted that an inadequate supply of homes in the market is driving prices upward, posing challenges for Americans trying to afford a home, particularly amidst elevated mortgage rates.
According to the National Association of Realtors, the median sale price of an existing home surged by over 5 percent in January, despite sales bouncing back by more than 3 percent from previous months’ sluggishness. However, the housing market continues to grapple with a supply shortage. The number of properties available for sale at current prices translates to approximately three months of supply, a figure lower than last month and even lower than in November.
In January, the sale price for a home reached a little over $379,000, setting a record high due to limited supply. Wells Fargo economists highlighted that this marked “the highest sales price ever for the month of January and the seventh consecutive month of year-over-year price gains.”
Although mortgage rates dipped to the mid-6 percent range from their peak in the fall of 2023, they have since risen again. Freddie Mac reported on Thursday that the average 30-year fixed rate was nearly 7 percent.
Lower rates at the end of last year and the beginning of 2024 incentivized buyers, contributing to price increases. However, high mortgage rates are also constraining supply, exacerbating price pressures.
According to real estate platform Redfin, nearly 90 percent of homes in America have rates below 6 percent. Consequently, sellers are hesitant to give up cheaper home loans and enter a market where 30-year fixed rates exceed 7 percent.
Wells Fargo noted, “With homebuyers taking advantage of lower mortgage rates, low levels of inventory have kept upward pressure on prices.” They added, “The combination of relatively higher mortgage rates and higher home prices will continue to make housing less affordable to many potential homebuyers.”
The outlook for the housing market hinges on the trajectory of borrowing costs in the coming months. The Federal Reserve implemented aggressive rate hikes to combat surging inflation, resulting in increased costs for loans, including mortgages. However, at their recent meeting, policymakers indicated that they have concluded raising rates from their current level of 5.25 to 5.5 percent as inflation moderates.
Experts anticipate an improvement in the housing market once rates begin to decline.
“We expect rates to resume their decline later in the year as the Federal Reserve’s rate cuts draw closer,” stated Nancy Vanden Houten, lead U.S. economist at Oxford Economics, in a note shared with Newsweek.