Housing sales fell by 3.4% between March and April as a result of uncertainty in the housing market, with many prospective buyers concerned about the effects of high prices and ever-shifting interest rates. Although prices have fallen somewhat since the beginning of the year, homes remain substantially more expensive than they were at the same time last year, with many homes outside the realm of affordability. Thus, it seems that many homebuyers are waiting for a more stable market that can better suit their needs.
High Prices in the Housing Market
The average sale price for a home in the United States at the end of Q1 was $516,500, down from $552,600 at the end of Q4 in 2022. While this is a substantial drop, it’s still up substantially from the beginning of the pandemic in 2020, when home prices sat at an average of $374,500. This dramatic rise in prices has kept many buyers out of the housing market, with many prospective buyers simply unable to afford homes.
Pressure From Inconsistent Interest Rates
Adding to this issue are inconsistent mortgage interest rates, owing to policy from the Federal Reserve. Interest rates for a 30-year fixed rate mortgage with conforming loan balances reached a high of 6.65% at the beginning of March, slowly dropping over the next few weeks until ultimately reaching 6.32% towards the end of the month. In addition to being significantly higher than they were even a year ago, these inconsistent rates may have kept people out of the market.
Why This is Happening
The housing market is in a precarious position, thanks to a number of factors, including interest rate hikes from the Federal Reserve, a low amount of available inventory, and high housing prices. Together, this has left many prospective homebuyers concerned about whether they should be putting their money into the market right now. For some, it is simply better to wait for better market conditions than to put money down and risk being left holding the proverbial bag when prices drop.
What it Could Mean For the Market
This precarious position will almost certainly not last forever. Homebuilders, for example, are eager to capitalize on the lack of available inventory to build new homes, which will help to ease pressure on the supply of homes and help to bring prices down. Interest rates may also start to fall as inflation has come under control. However, whether this will result in a good outcome for buyers or sellers remains to be seen.
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