US Home Price Just Won’t Budge

Housing Market Stalemate

It’s a frustrating market out there for prospective home buyers. The average 30-year fixed-rate mortgage rate has doubled since 2021, pushing it higher than it has been in two decades, but house prices haven’t gone down in response.

Despite the incredible surge in interest rates, bidding wars for attractive homes are raging on. Buyers and sellers are locked in a stalemate: Inflation-pressured buyers must cap their bids to meet their increasingly constrained budgets, but there is still enough demand out there to have sellers keep their asking prices up.

And it’s not just a matter of paying the asking price in a red hot market — it’s often a question of how much prospective buyers are willing or able to pay on top.

The State of Housing

Following a pandemic buying frenzy, a jump in material and labor costs, and rising interest rates, there are dramatically fewer homes available for sale.

U.S. housing inventory remains near record lows. With so few existing homes on the market, there is fierce competition for the homes that are available. And with mortgage rates high, people are thinking twice about whether to sell their current houses.

In a normal market, a significant decrease in sales would ordinarily force buyers to reduce their asking prices and cool off the housing market. But that’s not happening — the median price of a resale home remains more than $400,000.

Locked-in Mortgage

To see the patterns behind this perfect storm, we need to circle back to 2020 and 2021.

During these years, tens of thousands of homebuyers secured or refinanced mortgages at rock-bottom rates of just 2% to 3%. Today, the average mortgage rate sits above 7%. With prices and interest rates high, if a homeowner with a 3% mortgage wanted to move today, they’d likely be forced to move to a smaller home and a higher monthly payment.

With this in mind, it doesn’t make much financial sense for these homeowners to move. As a result, many homeowners are staying put, reducing supply. All that adds up to a less-than-ideal market for homebuyers. Nothing’s fair in love and bidding wars.

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