Housing Market Is Not yet at ‘Rock Bottom’ for Many

• Redfin’s CEO says the housing market is at “rock bottom.”
• That may be true for buyers, but for sellers, the crunch can still get worse.
• There is no end in sight for high mortgage rates, and sellers are dropping prices.

The housing market is still in an ugly place right now for many buyers, and while things may be stabilizing, that just means the pressure will likely shift from buyers to sellers.

In recent weeks, mortgage rates have fallen from their 23-year high of 8% to closer to 7%. But while some experts are predicting home prices to fall in the next year, they are currently holding steady and even ticking up due to the small number of houses for sale.

“It’s not a big uptick, but it is a step in the right direction and that’s important for people looking for homes,” Danielle Hale, the chief economist at Realtor.com, said on Fox Business Network’s “Mornings With Maria Bartiromo” on November 10. “We’re looking at a level of inventory that is roughly 40% lower than what we saw before the pandemic.”

According to a new report this week from the National Association of Realtors, this is especially hard on first-time buyers.

“We are still talking about an incredibly difficult market for first-time buyers to enter, even if there’s slightly less competition,” National Association of Realtors deputy chief economist Jessica Lautz wrote. “If there’s a multi-offer situation, an all-cash buyer or someone who has a lot of equity is likely to win. And that person is going to be older.”

While the market might be at “rock bottom” for buyers, sellers are not yet there after enjoying years of rising home values. In the see-saw of the real estate market, buyers may be ready to come up in the world at the same time sellers begin to sink.

Home prices could start to ease

In addition to mortgage rates starting to come back down to Earth, there are signs that things are easing for at least some people.

Home construction is on the rise at a time of year when it typically slows. Altos Research recently noted that new house inventory rose 1.8% in the last week of September compared to the week before.

Zillow also noted a rise in listings, with the real estate listing firm’s senior economist, Jeff Tucker, writing, “There are more motivated sellers and more active listings overall than any time since last December.”

In addition, more sellers are dropping their asking prices. According to Redfin, during the four weeks ending September 24, 6.5% of US homes for sale had a price drop, up from 5.8% in August.

Zillow’s numbers were even more aggressive, saying 9.2% of listings dropped their prices in the week ending September 16, the highest level since November 2022.

Some buyers could soon start to see big drops in prices

A growing inventory mixed with active price cuts is good news for people buying houses, and several experts are predicting big cost drops, including Jeremy Grantham, co-founder and chief investment strategist of GMO.

“House prices will come down,” Grantham said on “The Compound and Friends” podcast. “30% would be a pretty good guess.”

David Rosenberg, Rosenberg Research president and former chief North American economist at Merrill Lynch, told Insider in February that house prices could fall by as much as 25% from their peak in 2022.

Others agree that prices will come down, but not nearly that far. Morgan Stanley recently predicted prices to fall 3% in 2024. That’s more modest relief, but still some easing of pressure for buyers.

All that good news for buyers is nice. But even for some of them, rock bottom might be an illusion.

While they are still buying into elevated mortgage rates and much higher monthly payments, they are also looking at a time when insurance rates for many homes are surging thanks to climate change.

Homeowners with a mortgage typically pay their homeowner’s insurance as part of their monthly mortgage payment. So not only is the mortgage payment increasing thanks to interest rates, but it is getting a double-whammy with insurance premiums on the rise.

The bad news for sellers and homeowners

There is good news for some buyers, but that also means things are starting to get worse for sellers and rock bottom could be a ways off for them.

High mortgage interest rates — the highest in 23 years — have hurt buyers as home ownership is now deemed unaffordable in nearly 80% of all US counties.

However, home prices have stayed high this year in part thanks to those same interest rates. Homeowners locked into significantly lower rates have been reluctant to sell their houses unless necessary. This decreased the supply of homes for sale and kept prices rising.

“If you have a 3% mortgage, you’re not dying to sell that house and get into a 7% mortgage,” Richmond Fed President Tom Barkin said in an interview with the “Odd Lots” podcast. “It just changes the financial formula. And so what you see in terms of the effect is still a very limited supply of houses for sale.”

In this way, both buyers and sellers were stuck.

Thanks to the continued rising value of homes this year, homeowner equity is the highest in 35 years. But that might not last if prices start to fall.

If home prices start to tumble, not only does that hurt sellers, but it also hurts the value of all houses, eating at the equity owners might be counting on down the road.

And then there are those pesky insurance rates. These could also cause home prices in many areas to plummet, which, again, hurts both sellers and equity for people not selling.

Just because the market has stopped getting worse doesn’t mean it will get better anytime soon. Any rebound would likely have to wait for the Fed to start dropping interest rates, putting an ease on mortgages.

In other words, rock bottom would be nice right about now, but most Americans participating in the housing market are probably not there yet.