Now that we’re 6 months into the year, we wanted to offer you a forecast for the market as we think it may continue to play out. While the market has remained strong despite interest rates (currently hovering around 7%), we are beginning to see things slow down a bit nationwide, as well as in markets outside of the metro area. This is credited to a lack of inventory, which as you’re aware, has been a problem for several years. However, we think we’re starting to see that change.
Home sales nationwide are at a 30 year low, but with 70 million more people living in this country as opposed to 30 years ago, we only see homes sales trending up in the future. With continued job growth, steady rates, and the release of inventory from sellers who’ve been sidelined by their current low interest rates, we think we’ll see a rise in both inventory and sales. We predict prices will continue to go up, but at a steadier pace than we’ve seen over the past few years.
If this happens, it will be a blessing from an affordability perspective and will satisfy the overwhelming demand. Most major banks and predictors show an average increase in prices of 2-5% over the next year. Keep in mind that Real Estate is profoundly localized, and certain areas will be much higher than the national average. Ultimately, prices will continue to rise until more inventory becomes available or mortgage rates drop.
The likelihood of interest rates dropping before inventory increases is high, so we believe interest rates will be timelier in driving the market. We think that if rates drop to 6.5% we will begin to see improvement. If they drop into the upper 5% range, then we will see many buyers, as well as sellers, reenter the market. This would dramatically improve conditions. The current consensus amongst most bank forecasts is that rates will drop in the fall. I feel like that prediction has been made many times (by us and others) over the last few quarters, but it seems very likely now.
If rates go down, inventory will go up and will release current homeowners with low rates to move up in home size, as well as help older generations to reconsider smart sizing. We are strong proponents of a neutral market, which we haven’t had for almost 5 years. There is certainly some optimism in our forecast.
One thing we can say with certainty, is that given the complexity of the current and forecasted market, we continue to try to stay abreast of conditions and advise our clients to the best of our ability. We are here and ready to help you navigate these times and believe that we are an important part of achieving your housing goals.
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